- The Reserve Bank of India has released the Financial Stability Report.
- 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.
- The report has said that the Gross non-performing assets in the banking system have declined for the second consecutive half year while credit growth is picking up.
- The credit has picked following capital infusion by the government in public sector banks.This has led to overall improvement in the capital adequacy ratio(CAR) of commercial banks but there was a marginal decline in the CAR of private sector banks.
- Capital Adequacy Ratio (CAR) is the ratio of a bank’s capital in relation to its risk weighted assets and current liabilities.It is decided by central banks and bank regulators to prevent commercial banks from taking excess leverage and becoming insolvent in the process.The risk weighted assets take into account (a)credit risk (b)market risk and (c)operational risk.
- However,the report has called for greater surveillance on large entities in India’s Non-banking financial companies(NBFC) as their failure could lead to losses that are similar to those of big banks.
- NBFC have seen their source of funds suddenly dry up after a series of defaults by Infrastructure Leasing & Financial Services(ILFS) that has triggered a liquidity crisis.
- Further,the RBI has also said that it is reviewing its master direction on frauds and considering additional measures for timely recognition of frauds and enforcement action against violations.
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