The Reserve Bank of India's Financial Stability Reports (FSRs) are half-yearly assessments of the health of the financial sector. Of a comparatively recent origin, the FSR is intended to bring India's financial regulatory practices in line with the best in the world. Its key objective is to monitor and sustain the health of the financial sector. The RBI gives out its assessments and views at varied intervals through documents called variously as reports, policy statements, and reviews. For its part, the FSR distinctively focusses on the systemic aspects, rather than the individual components, of the financial sector and evaluates the soft spots in the Indian scene. Lessons are sought to be learnt from the interplay of the macroeconomic setting, policies, markets and institutions, for which the central bank claims to use the most up-to-date techniques and methodology. According to the latest FSR covering June-December 2011, the domestic financial system remains robust. The banking system is resilient enough to tide over unexpected adverse macroeconomic developments. But the good news, which is carried over from the previous FSR, was tempered by evidence of some deterioration in the macroeconomic environment and financial markets.
Notably, all components of domestic demand have decelerated. Inflation pressures remain elevated, driven by a number of factors. Risks to the external sector have increased. Trade deficit and, along with it, the current account deficit have widened. The fiscal position remains challenging and, as the recent additional demand for supplementary grants shows, the risk of fiscal slippages is real. Equity and financial markets continue to be volatile, mainly due to adverse developments abroad. Exchange depreciation, which has been particularly sharp, is beginning to impact the Indian economy through various channels. There have been large transaction losses on foreign exchange exposures. Repayment of external commercial borrowings has become more expensive. Among financial institutions, the FSR shows some deterioration in financial soundness indicators, but capital adequacy stays well above regulatory requirements, and asset quality compares favourably with what obtains in peer countries. As the year progresses, the slowdown in GDP growth will make the Indian financial sector more vulnerable. Banks will have simultaneously to address the related challenges of lower asset quality and raising additional capital, the latter also to comply with the Basel III requirements. The FSR once again gives a clean chit to the Indian financial sector, but warns of troubles ahead.
Keywords: Financial Stability Report, Reserve Bank of India, RBI, financial sector assessment, Indian economy assessment
It is again a fraud report from a government agency just to console the people, it says clearly that banking system is in jeopardy, inflation is still near nine percent(we may feel it is less because after two long years it has come down to such lower level ) and RBI clearly says it will be around seven percent in march 2012, financial deficit is at record high, sometimes it may touch 150 bn $ mark(enough to make our economy sluggish for coming two to three years). i don't understand how this report can conclude that financial health is robust despite all these bad news. now we are hoping that our economy too will get a boost because there are some good news from western markets(which are not sustainable at all, it has become a western culture that if a economy gives a good signal, other five will start to collapse, see what happened in Europe in last two years ). I wish that gov will apply its mind and rather than giving any value to such reports, it will look into real matters.
Financial Stability Report has rightly indicated that health of India`s financial system is robust during June-Dec.-2011. But it has certain reservation like declining share market, depreciation of rupee value, rising crude oil prices and persistent high inflation. These will require to tackle by RBI and Government through its macro economy policy. If India want to achieve 8% growth in 2011-12. It has to require to take second generation policy reform.
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