FINANCIAL STABILITY REPORT
28, Jun 2019
Prelims level : Polity governance- Constitutional Bodies, Regulatory Bodies Mains level : Structure, organization and functioning of the Executive and the Judiciary Ministries and Departments of the Government; pressure groups and formal/informal associations and their role in the Polity.
What is it About?
- The FSR reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on risks to financial stability, as also the resilience of the financial system.
- Gross non-performing assets in the banking system have declined for the second consecutive half year, while the credit growth is picking up.
- Gross NPA ratio declined to 9.3% as on March 2019. It was 10.8% in September 2018 and 11.5% in March 2018.
- Gross NPAs could further decline to 9% by March 2020, the macro stress tests indicated.
What is Non-Performing Asset (NPA)?
- A nonperforming asset (NPA) refers to a classification for loans or advances that are in default or are in arrears on scheduled payments of principal or interest.
- In most cases, debt is classified as nonperforming when loan payments have not been made for a period of 90 days.
- While 90 days of non-payment is the standard, the amount of elapsed time may be shorter or longer depending on the terms and conditions of each loan.
- Following the capital infusion by the government in public sector banks, the overall capital adequacy ratio of the commercial banks improved from 13.7% in September 2018 to 14.3% in March 2019, with state-run banks’ CAR improving from 11.3% to 12.2% during the period. However, there was a marginal decline in the CAR of private sector banks.
- Credit growth of Public sector banks were at 9.6% while private lenders continue to robust growth of 21%.
What is Capital Adequacy Ratio – CAR?
- The capital adequacy ratio (CAR) is a measurement of a Bank’s available capital expressed as a percentage of a bank’s risk-weighted credit exposures.
- The capital adequacy ratio, also known as capital-to-risk weighted assets ratio (CRAR), is used to protect depositors and promote the stability and efficiency of financial systems around the world.
- The reason minimum capital adequacy ratios (CARs) are critical is to make sure that banks have enough cushion to absorb a reasonable amount of losses before they become insolvent and consequently lose depositors’ funds.