Rbi Financial Stability Report 2022

G S SC O RE
An Institute for Civil Services
| www.iasscore.in |
RBI FINANCIAL STABILITY

REPORT 2022
About: Reserve Bank released the 25th issue of the Financial Stability Report (FSR) recently.
Objective: It reflects the collective assessment of the Sub-Committee of the Financial Stability and
Development Council (FSDC) on risks to financial stability and the resilience of the financial system.
FSR: It is published biannually and includes contributions from all the financial sector regulators.
2022 Edition: It majorly includes a survey of international regulatory and supervisory practices.
Key Highlights:
Macro Financial Risks

The outlook for the global economy is shrouded by considerable uncertainty because of the war in Europe,
front-loaded monetary policy normalization by central banks in response to persistently high inflation and
multiple waves of the COVID-19 pandemic.
Stagflation risks are mounting for EMEs and advanced economies (AEs) alike as tightening financial
conditions threaten to restrain the pace of growth with inflationary pressures.
Domestic Economy and Markets

!! In the Indian economy, high-frequency indicators point to a gradual but unevenly strengthening recovery
in the first quarter of 2022-23.
!! Market risks are rising as spells of volatility are unleashed by foreign portfolio investment outflows and
the sharp appreciation of the US dollar.
Banking Sector
!! Banks as well as non-banking financial institutions have sufficient capital buffers to withstand shocks.
!! Bank credit growth is picking up steadily, already clocking double digits.
GIST OF REPORT: RBI FINANCIAL STABILITY REPORT 2022 3

G S SC O RE
| www.iasscore.in |
!! Banks have also bolstered capital and liquidity positions while asset quality has improved.
!! Non-banking financial companies (NBFCs) remain well capitalised.
Regulatory Initiatives and Other Developments in the Financial Sector

!! Strengthening the regulation of nonbank financial intermediation remains a priority.
!! Developments in the crypto ecosystem and the broader role of technology in financial services are also
receiving increased attention.
Assessment of Systemic Risk

!! In the latest systemic risk survey (SRS) conducted by the Reserve Bank in May 2022, global spillovers and
financial market volatility moved to the ‘high’ risk category.
!! Global growth uncertainty, commodity price movements, geopolitical conditions and monetary
tightening in AEs are perceived to be the major drivers of global risks.
Gross non-performing assets (GNPA) ratio:

Scheduled commercial banks (SCBs) gross non-performing assets (GNPA) ratio slipped to a six-year low
of 5.9 per cent and net non-performing assets (NNPA) ratio fell to 1.7 per cent in March 2022.
Reason: Among financial institutions, banks have reduced gross nonperforming asset (GNPA) ratio
through recoveries, write-offs and reduction in slippages.
With gross non-performing assets (GNPA) ratios down to their lowest levels in six years and a modest
return to profitability, bank credit growth is in double digits after a long hiatus.
Performance of Major Sectors
The Corporate Sector:

!! The Indian corporate sector witnessed healthy sales growth reflecting sustained recovery in demand
condition of manufacturing sector.
!! Information technology (IT) companies exhibited pandemic proofing and maintained strong growth
while non-IT services companies are on a recovery.
External Sector Developments and Foreign Exchange Markets:

!! India’s external sector has remained resilient during the pandemic.
!! As the recovery in domestic economic activity gathered pace and strength and found expression in
rising import demand, the current account balance moved from a surplus of 0.9 per cent of GDP in 2020-
21 to a deficit of (-)1.2 per cent in 2021-22, as the trade deficit widened.
!! While export performance was robust, surging prices of commodities, especially crude oil, delivered a
terms of-trade shock to the trade deficit in addition to the pressure from domestic demand; both oil and
non-oil trade accounts recorded higher deficit.
!! India’s exports of merchandise and services performed robustly, providing an offset to widening trade
deficit and an increase in net investment income payments.
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G S SC O RE
| www.iasscore.in |
Domestic Equity Market:

!! Domestic equity indices had made significant gains during 2020 and 2021, outperforming peers on the
back of better growth prospects.
Non-Banking Financial Companies (NBFCs):

!! The NBFC sector has a satisfactory capital position and asset quality at the aggregate level.
!! The GNPA ratio of the sector has improved from 6.1 per cent in March 2021 to 5.8 per cent in March
2022.
Credit flows to the MSME Sector:

!! The micro, small and medium enterprise (MSME) sector, which was hit hard by the pandemic, is showing
signs of revival: aggregate credit to the sector witnessed a strong revival during Q4:2021- 22.
!! The Emergency Credit Line Guarantee Scheme (ECLGS22) has played a key role in reviving the MSME
sector.
!! The upsurge of domestic demand and pick up in ancillary industries and service units has increased
funding requirement of this sector, which provides employment to a large section of the population.
Major Risks to Financial Stability:

Aggressive monetary policy tightening by AEs;
Volatility in capital flows and exchange rates;
De-anchoring of inflation expectations;
Faltering of economic recovery;
Disruptions in global supply chains;
De-globalisation; and
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G S SC O RE
| www.iasscore.in |
Climate change risk to the asset side exposure of financial sector.
Steps taken to improve the financial system:

On the domestic front, efforts to improve financial system resilience continues.
Regulators have taken several measures to strengthen financial intermediaries, accelerate digitalization
of the economy, develop market segments, improve access of retail investors and protect the interests of
depositors/investors.
The fast-changing financial landscape is keeping regulators on the vigil to not only safeguard the financial
system from shocks, but also unlock its potential to drive economic growth.
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6 GIST OF REPORT: RBI FINANCIAL STABILITY REPORT 2022

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G S SC O RE

An Institute for Civil Services

RBI FINANCIAL STABILITY

 Macro Financial Risks

 Domestic Economy and Markets

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!! Non-banking financial companies (NBFCs) remain well capitalised.

 Regulatory Initiatives and Other Developments in the Financial Sector

 Assessment of Systemic Risk

Gross non-performing assets (GNPA) ratio:

Performance of Major Sectors

 The Corporate Sector:

 External Sector Developments and Foreign Exchange Markets:

4 GIST OF REPORT: RBI FINANCIAL STABILITY REPORT 2022

 Domestic Equity Market:

 Non-Banking Financial Companies (NBFCs):

 Credit flows to the MSME Sector:

Major Risks to Financial Stability:

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 Climate change risk to the asset side exposure of financial sector.

Steps taken to improve the financial system:

6 GIST OF REPORT: RBI FINANCIAL STABILITY REPORT 2022

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Macro Financial Risks

Domestic Economy and Markets

Regulatory Initiatives and Other Developments in the Financial Sector

Assessment of Systemic Risk

The Corporate Sector:

External Sector Developments and Foreign Exchange Markets:

Domestic Equity Market:

Non-Banking Financial Companies (NBFCs):

Credit flows to the MSME Sector:

Climate change risk to the asset side exposure of financial sector.