Recently RBI released its annual Report on Trend and Progress of Banking in India 2023-24 under the Banking Regulation Act, 1949, RBI’s annual report and Financial Stability Report.
Key Takeaways from the December 2024 FSR
- Strong Macroeconomic Fundamentals: India’s macroeconomic fundamentals remain strong, supporting the resilience of the financial system.
- Healthy Banking Sector: Scheduled commercial banks (SCBs) exhibit strong profitability and declining non-performing assets (NPAs), while maintaining adequate capital and liquidity buffers.
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Report on Trend and Progress of Banking in India 2023-24
- Scheduled Commercial Banks (SCBs)
- Credit Growth & Profitability: SCBs recorded profitability improvements for the sixth consecutive year.
- Improved Asset Quality: Gross Non-Performing Assets (NPAs) fell to a 13-year low of 2.5% (as of September 2024).
- Strong Capital Position: Capital-to-Risk-Weighted Assets Ratio (CRAR) stood at 16.8% (regulatory minimum is 9%, BASEL-III norms mandate 8%).
- Urban Co-operative Banks (UCBs): Expanded balance sheet with asset quality improving for the third consecutive year.
- Non-Banking Financial Companies (NBFCs): NBFCs achieved double-digit credit growth and their Gross NPAs reduced to 3.4% by September 2024.
- Technological Advancements: Unified Lending Interface (ULI) and Open Credit Enablement Network (OCEN) launched to enhance credit access for small businesses and individuals.
- Financial Inclusion: National Strategy for Financial Inclusion (NSFI) 2025-30 aims to deepen financial inclusion and tackle emerging challenges.
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- Healthy NBFCs: Non-Banking Financial Companies (NBFCs) maintained sizable capital buffers, robust earnings, strong interest margins, and improving asset quality.
- Insurance Sector Stability: The insurance sector upheld a consolidated solvency ratio above the required minimum, ensuring resilience.
- Macroeconomic and Financial Resilience: India’s financial system is underpinned by strong macroeconomic fundamentals, healthy balance sheets, and adequate capital buffers across financial institutions, despite global vulnerabilities.
- Global Risks: The report acknowledged the ongoing global risks, such as geopolitical tensions and the possibility of a global economic slowdown.
About Financial Stability Report (FSR)
- The Financial Stability Report (FSR) is a biannual report released by the Reserve Bank of India (RBI).
- Key Features:
- Assessment of Financial System: The FSR provides a comprehensive assessment of the resilience of the Indian financial system.
- Identification of Risks: It identifies and analyzes potential risks to financial stability, both domestic and global.
- Macroeconomic Analysis: The report includes an analysis of macroeconomic factors that could impact the financial system.
- Stress Testing: It conducts stress tests on various sectors of the financial system to assess their resilience under different scenarios.
- Significance:
- Early Warning System: The FSR acts as an early warning system for potential financial crises.
- Policy Guidance: It provides valuable insights to policymakers, regulators, and market participants.
- Transparency and Accountability: It enhances transparency and accountability within the financial system.
- Recent FSR: The latest FSR released in December 2024 highlighted the resilience of the Indian financial system despite global challenges.
Concerns Raised by RBI in Its Recent Reports (2024)
- Rising Banking Frauds: A significant increase in fraud cases was reported, with 18,461 cases amounting to ₹21,367 crore during April-September 2024, compared to 14,480 cases worth ₹2,623 crore the previous year.
- Cybersecurity Threats: The surge in digital transactions has led to an increase in cyber frauds, highlighting the need for robust measures, public awareness, and the identification of mule accounts.
- Global Economic Vulnerabilities: Persistent medium-term risks such as stretched asset valuations, high public debt, geopolitical tensions, and emerging technology risks were noted as potential challenges to financial stability.
- Operational and Reputational Risks: Rising fraud cases and technological threats pose risks to the reputation and operational integrity of financial institutions, demanding intensified regulatory vigilance.
- Emerging Technology Risks: The rapid adoption of technologies like artificial intelligence and digital platforms requires addressing associated security and systemic risks.
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Measures Suggested by RBI in the Reports (2024)
- Enhancing Cybersecurity:
- Undertake large-scale preventive awareness campaigns to educate the public on cyber frauds.
- Strengthen efforts to identify and eliminate mule accounts used in fraudulent activities.
- Strengthening Financial Intermediaries:
- Improve resilience through enhanced risk management frameworks for banks, NBFCs, and other financial entities.
- Ensure adherence to stringent capital adequacy and liquidity norms validated by macro stress tests.
- Regulatory Vigilance and Adaptability:
- Reinforce monitoring and regulatory mechanisms to mitigate operational and reputational risks.
- Promote adaptability to evolving financial landscapes and emerging technological challenges.
- Fraud Prevention and Consumer Protection:
- Intensify fraud prevention measures by leveraging advanced technological tools.
- Enhance customer awareness and ensure robust protection mechanisms against financial losses.
- Focus on Financial Stability:
- Foster resilience in financial systems by addressing medium-term vulnerabilities like high public debt and geopolitical risks.
- Continue stress testing to ensure systemic stability across sectors, including mutual funds and clearing corporations.
December 31, 2024
