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.

Enroll now for UPSC Online Classes

• 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.

Check Out UPSC NCERT Textbooks From PW Store

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.