FINANCIAL STABILITY REPORT: ECONOMY

FINANCIAL STABILITY REPORT: ECONOMY

NEWS: India’s financial system remains stable bolstered by healthy balance sheets of banks, NBFCs: RBI’s FSR

WHAT’S IN THE NEWS?

The Reserve Bank of India’s Financial Stability Report (FSR) for December 2024 highlights the improvement in asset quality of Scheduled Commercial Banks (SCBs), with GNPA ratios at a 12-year low, while also showcasing the resilience of India’s financial system amidst global uncertainties.

Asset Quality and Bank Performance

  • GNPA and NNPA Ratios:
  • GNPA ratio declined to 2.6% (12-year low) as of September 2024.
  • NNPA ratio remains steady at 0.6%.
  • Provisioning Coverage Ratio (PCR): Improved to 77%, led by proactive provisioning by Public Sector Banks (PSBs).
  • NPA Reduction:
  • Significant contribution from write-offs.
  • Write-off to GNPA ratio increased for foreign banks, declined marginally for PSBs and Private Sector Banks (PVBs).
  • Profitability and RoA: Improved but offset by declining Net Interest Margin (NIM) due to shifts in deposit profiles.

Banking System Resilience

  • Capital Buffers: Adequate buffers ensure resilience even under stress scenarios.
  • Deposit Profile:
  • Decline in low-cost CASA (Current Account and Savings Account) deposits.
  • Preference for higher interest term deposits.
  • Loan and Deposit Growth: Moderated in H1 2024-25.

Household Debt

  • Current Level: 42.9% of GDP (low compared to other Emerging Market Economies).
  • Drivers: Increase due to rising borrowers, not average indebtedness.
  • Usage of Loans:
  • Consumption (personal loans, credit cards).
  • Asset creation (mortgage and vehicle loans).
  • Productive purposes (agriculture, business, education loans).

Broader Economic Insights

  • Stock Market:
  • Despite corrections, equity valuations remain elevated.
  • Midcap, smallcap, and microcap stocks yielded returns of over 30%, with the Nifty 50 Index posting annualized returns of 17%.
  • Economic Resilience:
  • Projected GDP growth: 6.6% in 2024-25.
  • Supported by rural consumption, government investment, and services exports.

Gross Non-Performing Assets (GNPA):

  • GNPA refers to the total value of loans that are in default or arrears for a specified period (typically 90 days or more).
  • It includes all the non-performing loans before any provisions or write-offs are made by the bank.
  • GNPA is a key indicator of a bank's overall asset quality and health.

Net Non-Performing Assets (NNPA):

  • NNPA represents the portion of GNPA that remains after deducting provisions made by the bank for bad and doubtful debts.
  • NNPA = GNPA - (Provisions + Interest in Suspense).
  • It indicates the actual burden of non-performing assets on the bank and its profitability.

Source: https://www.thehindu.com/business/indias-financial-system-remains-stable-bolstered-by-healthy-balance-sheets-of-banks-nbfcs-rbis-fsr/article69044202.ece