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Indian Economy

Financial Stability Report : RBI

  • 28 Jun 2019
  • 4 min read

The Reserve Bank of India has released the 19th issue of the Financial Stability Report (FSR).

  • The report assessed that India’s financial system remains stable in the backdrop of improving resilience of the banking sector. However, the emerging trends in the global economy and geopolitical environment pose challenges.

Major Global and Domestic Macro-Financial Risks

  • Lower global growth forecast by international institutions like World Bank and IMF.
  • Adverse geopolitical developments and trade tensions.
  • Eased monetary policy stance undertaken by the central banks of Advanced economies’ (AEs) and the need for emerging and developing economies to adjust to it.
  • Subdued new investment.
  • A widening current account deficit.
  • The challenge of reviving private investment demand while being vigilant about the spillover from global financial markets.

Financial Institutions: Performance and Risks

  • Credit growth of scheduled commercial banks (SCBs) picked up, with public sector banks (PSBs) registering near double digit growth.
  • Capital adequacy of the SCBs improved after the recapitalisation of PSBs. The non-performing asset (NPA) cycle seems to have turned around.
  • Provision coverage ratio (PCR) of all SCBs rose sharply to 60.6% in March 2019 from 52.4% in September 2018, increasing the resilience of the banking sector.

Provision coverage ratio (PCR)

  • The Provisioning Coverage Ratio is the percentage of bad assets that the bank has to provide for from their own funds. In other words, it is the ability of banks to service its debt and meet its financial obligations such as interest payments or dividends.
  • The higher the coverage ratio, the easier it is to make interest payments on debt or pay dividends.

Financial Sector: Regulation and Developments

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