Financial Stability Report – 2020.
25-07-2020 No Comments » UPSC - IAS ADMO ✅

Today, on Jul 25, 2020 the Reserve Bank of India has released the 21st Issue of the Financial Stability Report for 2020.

What’s Important?

This report is released twice in a year (bi-annual) by the Reserve Bank of India.

The Financial Stability Report is often referred to as FSR Report, which reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council on risks to financial stability and resilience of the financial system.

The report also takes note of the issues relating to the development and regulation of the financial sector.

Highlights of Financial Stability Report:

Credit Growth Sector

  • Due to COVID-19 impact on the global market, India has also recorded the normal functioning of its financial markets. No growth has been seen as the country has confronted unprecedented Pandemic.
  • The overleveraged non-financial sectors are experiencing down risks and economic losses by the reason of geopolitical issues.
  • Bank credit has been seen in considerably at down risk and weakened during the first half of 2019-20.
  • CRAR of scheduled commercial banks has gone down from 15% (in SEP-2019) to 14.8% (in MAR-2020).
  • The report also reveals that total bilateral exposures among financial entities declined marginally during 2019-20.

Bank Credit: Amount of the total credit owned by a bank that can be offered to a person or business as a loan.

CRAR: Capital to risk-weighted assets ratio which is also known as Capital Adequacy Ratio (CAR), is an indicator of Bank’s absorbability against its capital risks.

Decline in Gross Non-Performing Asset (GNPA) Ratio

  • A record in decline of GNPA Ratio from 9.3% to 8.5% for Scheduled banks.
  • PCR for Scheduled Banks has improved from 61% to 65.4% for 2019-20 period.
Financial Stability Report - JUL - 2020.

Non-Performing assets: Non-performing assets are the Bad loans of the Banks which have not been serviced or failed to re-generate the income for one term or 90 days. Generally, NPA occurs if the borrower fails to pay the interest or the principal amount of the loan for more than 90 days. Loan amount is also considered as the assets of the bank and if the borrower stops paying its EMIs the bank starts losing its money.

Classification of the NPA: Non-performing assets are classified into three different types –

  • Sub-Standard: The assets that are pending for less than or equal to 18 months.
  • Doubtful: The assets that are pending for more than 18 months.
  • Loss assets: The assets that are marked as lost by the Banks but have not been completely written off yet.

GNPS: Gross Non-Performing Assets are the sum of the loans which have been identified as the NPA by the Financial Institutions.

PCR: Provision Coverage Ratio indicates the extent of funds a bank has kept aside to cover loan losses.

Future Expectation

  • Increase in GNPA ratio from 8.5% to 12% is expected for all SCBs.
  • Major challenges for large section of Society due to Pandemic impact.

Read this also: UN projects India to be the most populous country by 2027, replacing China which has a population of around 1.42 billion.

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