The Reserve Bank of India (RBI) today unveiled the December 2024 edition of the Financial Stability Report (FSR), providing an in-depth analysis of the resilience of the Indian financial system and potential risks to financial stability. The report reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC).
Key Highlights of the Report
1. Global Financial Resilience:
The global economy and financial systems continue to show resilience, with short-term risks subsiding. However, medium-term risks persist, including high public debt, stretched asset valuations, geopolitical conflicts, and challenges from emerging technologies.
2. Indian Economy’s Strength:
India’s economy and financial system are backed by strong macroeconomic fundamentals and robust balance sheets across banks and non-banking financial institutions.
3. Improved Performance of Banks:
Scheduled Commercial Banks (SCBs) have demonstrated significant improvements in financial health:
- Profitability: Both Return on Assets (RoA) and Return on Equity (RoE) have reached the highest levels in the last decade.
- Asset Quality: The Gross Non-Performing Asset (GNPA) ratio has dropped to a multi-year low.
- Capital and Liquidity: Banks possess sufficient capital and liquidity buffers, ensuring stability even under stress scenarios.
4. Stress Test Results:
Macro stress tests confirm that most SCBs have adequate capital buffers to withstand adverse conditions. Similar resilience is observed in mutual funds and clearing corporations.
5. Non-Banking Financial Companies (NBFCs):
NBFCs maintain healthy performance, supported by strong capital reserves, stable interest margins, and improved asset quality.
6. Insurance Sector Stability:
The insurance sector’s solvency ratio remains well above the minimum threshold, reflecting its robust financial position.
Broader Implications
The report underscores the resilience of the Indian financial sector amid global uncertainties and potential risks. While the near-term outlook remains stable, vigilance is required to address medium-term vulnerabilities. The FSR highlights India’s strong financial ecosystem, driven by reforms, sound regulatory practices, and proactive risk management, ensuring continued confidence in the nation’s economic stability.
