- The report is published by Reserve Bank of India. The report reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on risks to financial stability and also the resilience of the financial system. It also discusses problems regarding the development and regulation of the financial sector.
Overall Assessment of Systemic Risks
- India’s financial system is stable, and the banking sector is showing signs of improvement, even though the global economic environment and the emerging trends in financial sector pose challenges.
Global and Domestic Macro-financial Risks
- The global growth outlook for 2018 and 2019 remained steady although the underlying downside risks have risen.
- Spill-over risk to rising economies engendered by tightening of financial conditions in Advanced Economies, protectionist trade policies and global geopolitical tension has significantly increased.
- The gradual monetary policy normalisation in advanced economies (AEs) in global trade regime may adversely have an effect on capital flows of emerging markets (EMs) and exert upward pressure on EM interest rates and corporate spreads.
- On the domestic front, growth of gross domestic product (GDP) showed slight moderation in quarter two (Q2:2018-19) while inflation remained contained.
- In domestic financial markets, structural shifts in credit intermediation and the evolving interconnectivity between banks and the non-banks call for greater vigilance.
Financial Institutions: Performance and risks
- Credit growths of scheduled commercial banks (SCBs) have improved between March and September 2018, driven largely by private sector banks (PSBs).
- The asset quality of banks showed an improvement with the gross non-performing assets (GNPA) ratio of SCBs declining from 11.5% in March 2018 to 10.8% in September 2018.
- Under the baseline scenario, GNPA ratio may decline from 10.8% in September 2018 to 10.3% in March 2019.
- Analysis of the financial network structure for the period September 2017 - September 2018 revealed a shrinking inter-bank market and increasing bank linkages with asset management companies-mutual funds (AMC-MFs) for raising funds and with NBFCs/Housing Finance Companies (HFCs) for disposal.
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