Despite headwinds, Indian financial system resilient, says RBI report

The Indian economy is confronting strong global headwinds, yet sound macroeconomic fundamentals and healthy financial and non-financial sector balance sheets are providing strength and resilience and engendering financial system stability, an RBI report released on Thursday said.”The global economy is facing formidable headwinds with recessionary risks looming large. The interplay of multiple shocks has resulted in tightened financial conditions and heightened volatility in financial markets,” observed the RBI’s Financial Stability Report.”Buoyant demand for bank credit and early signs of a revival in investment cycle are benefiting from improved asset quality, return to profitability and strong capital and liquidity buffers of scheduled commercial banks (SCBs),” it said.The gross non-performing asset (GNPA) ratio of scheduled commercial banks fell to a seven-year low of 5 per cent and net non-performing assets have dropped to 10-year low of 1.3 per cent in September 2022, the report noted.Macro stress tests for credit risk reveal that SCBs would be able to comply with the minimum capital requirements even under severe stress scenarios, it said further.The system-level capital to risk weighted assets ratio (CRAR) in September 2023, under baseline, medium and severe stress scenarios, is projected at 14.9 per cent, 14.0 per cent and 13.1 per cent, respectively, the central bank analysis said.Stress tests for open-ended debt mutual funds showed no breach in limits pertaining to interest rate, credit and liquidity risks.Consolidated solvency ratio of both life and non-life insurance companies also remained above the prescribed minimum level, it added.