Mumbai: According to the RBI financial stability report published on Monday, the Indian economy and domestic financial system are supported by solid macroeconomic fundamentals, robust bank and non-bank balance sheets, and returns on assets at decadal highs.
“The Indian economy is exhibiting steady growth, underpinned by solid macroeconomic fundamentals and strong domestic growth drivers,” according to the research.
Sufficient capital and liquidity buffers, excellent profitability, and a decline in non-performing assets have all contributed to the stability of scheduled commercial banks (SCBs). According to the research, the gross non-performing asset (GNPA) ratio has dropped to a multi-year low, while return on equity (RoE) and return on assets (RoA) are at decadal highs.
Even in the face of unfavourable stress situations, macro stress tests show that the majority of banks have sufficient capital buffers in comparison to the statutory minimum. The durability of clearing companies and mutual funds is also confirmed by stress tests. With substantial capital buffers, strong interest margins and earnings, and rising asset quality, non-banking financial corporations (NBFCs) continue to be healthy.
According to the research, the insurance industry’s consolidated solvency ratio continues to be higher than the required requirement. It also notes that in spite of increased uncertainty, the financial system and the world economy are nevertheless robust.
Vulnerabilities include bloated asset prices, excessive public debt, protracted geopolitical conflicts, and new technology threats that represent medium-term dangers to financial stability, even as near-term risks have diminished.
Healthy bank and non-bank balance sheets, strong capital buffers, good profitability, and improved asset quality all contribute to the resilience of the domestic financial system.
The RBI report also stated that close monitoring is necessary for vulnerabilities such as stretched equities values, areas of stress in the consumer credit and microfinance sectors, and risks from external spillovers.
The goal of domestic regulatory efforts is still to strengthen the financial system’s resilience and safety. According to the research, efforts have been directed towards enhancing the resilience of market infrastructure and financial intermediaries, with a particular focus on fraud prevention, cyber resilience, and customer protection.
Global regulatory efforts have focused on reducing the risks associated with third-party dependence, cyber security threats, and technology improvements. Resolving weaknesses in financial intermediaries that are not banks and cross-border payment systems remain priorities, the report added.