Financial Stability Current Affairs - 2020

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RBI Financial Stability Report: NPAs will increase

On December 27, 2019, RBI released Financial Stability Report. The report is biennial and reflects the collective assessment of the Sub-committee of Financial Stability and Development Council. The report said that the non-performing asset ratio of banks is increasing. It was 9.9% in September 2019 and may rise to 9.9% in September 2020.

Highlights of the report

The Provision Coverage Ratio of banks increased to 61.5% in September 2019 from 60.5% in March 2019. It is the ratio that gives an indication about the provisions made against bad loans. When the PCR is higher, the unexposed part of bad loans is lower. Therefore, higher PCR is good for an economy.

The report also stated that capital to risk weighted assets ratio (CRAR) improved to 15.1% in September 2019 from 14.3% in March 2019.

The credit losses have jumped by 7.33% as compared to June 2019.

Highlights: Sector wise

The report stated that only 4 banks had Gross Non-Performing Asset ratio (GNPA) higher than 20%. On the other hand, around 24 banks had GNPA ratio under 5%. The GNPA measure was used to measure asset quality of agricultural and industrial sectors

The report said that asset quality of agriculture deteriorated to 10.1% in September 2019 as compared to 8% in March 2019. In case of industrial sector, GNPA declined to 3.79%.

Frauds

The frauds reported by the banks touched an all time high of around Rs 1.13 lakhs in the FY19. The number of cases that accounted to the fraud was 4,412. The frauds reported between 2001-18 accounted to 90% of the frauds registered in 2019 alone!

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FSDC Sub-Committee reviews financial events of country

The Sub-Committee of Financial Stability and Development Council (FSDC) reviewed major global and domestic developments that could impinge country’s financial stability. The sub-committee meeting was headed by Reserve Bank of India (RBI) Governor Urjit Patel.

Key Facts

Sub-Committee of the FSDC also discussed setting up of National Centre for Financial Education (NCFE), operationalisation of information utilities registered by the IBBI, sharing of data among regulators and implementation status of Legal Entity Identifier (LEI).

Besides, it also reviewed activities of its various technical groups as well as functioning of State Level Coordination Committees. Its recommendations on FinTech and digital innovations, shadow banking implementation group and Stewardship Code were also discussed.

Financial Stability and Development Council (FSDC)

FSDC is super regulatory body for regulating financial sector which is vital for bringing healthy and efficient financial system in the economy. Its mandate is to strengthen and institutionalise mechanism of maintaining financial stability, financial sector development, inter-regulatory coordination along with monitoring macro-prudential regulation of economy.

The Union Finance Minister is chairman of FSDC. Its members are heads of the financial sector regulatory authorities (i.e, RBI, SEBI, IRDA, PFRDA), Finance Secretary and/or Secretary, Department of Economic Affair; Secretary, Department of Financial Services, and Chief Economic Adviser.

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