The Reserve Bank of India (RBI) released the December 2024 Financial Stability Report (FSR), assessing the Indian financial system’s resilience. The report, reflecting the assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC), indicates a robust Indian financial system amid global vulnerabilities. The report covers global and domestic economic conditions, the performance of scheduled commercial banks (SCBs) and non-banking financial companies (NBFCs), and the insurance sector’s solvency.
The global financial system shows resilience, but medium-term risks persist, including stretched asset valuations, high public debt, geopolitical conflicts, and emerging technology risks. The Indian economy and domestic financial system remain strong, supported by sound macroeconomic fundamentals and healthy balance sheets. SCBs demonstrate strong profitability and declining non-performing assets (NPAs), while maintaining adequate capital and liquidity buffers. NBFCs are healthy, exhibiting sizable capital buffers, robust interest margins and earnings, and improving asset quality. The insurance sector also maintains a healthy position, with its consolidated solvency ratio remaining above the required minimum. The FSR is a report published by the Reserve Bank of India (RBI) that reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on the resilience of the Indian financial system and risks to financial stability.
“The global economy and financial system remain resilient. However, medium-term risks exist, such as stretched asset valuations, high public debt, geopolitical conflicts, and risks from emerging technologies.”
“India’s financial system is underpinned by strong macroeconomic fundamentals and healthy balance sheets of banks and non-banks.”
Globally, while short-term risks have decreased, medium-term vulnerabilities persist. These vulnerabilities include inflated asset values, high public debt, geopolitical tensions, and emerging technology risks. India’s financial system is supported by robust macroeconomic fundamentals and the healthy balance sheets of banks and non-bank financial institutions.
“SCBs are performing well, with strong profitability, declining non-performing assets, and adequate capital and liquidity buffers. Return on assets (RoA) and return on equity (RoE) are at decadal highs, while the gross non-performing asset (GNPA) ratio is at a multi-year low.”
SCBs exhibit strong profitability, with Return on Assets (RoA) and Return on Equity (RoE) at decadal highs. Their gross NPA (GNPA) ratio sits at a multi-year low. SCBs maintain adequate capital and liquidity buffers, validated by stress tests. Macro stress tests confirm that most SCBs possess adequate capital buffers exceeding regulatory minimums, even under adverse scenarios. These tests also validate the resilience of mutual funds and clearing corporations.
“NBFCs remain healthy with sizable capital buffers, robust interest margins and earnings, and improving asset quality.”
NBFCs maintain healthy capital buffers, strong interest margins and earnings, and improving asset quality. The insurance sector’s consolidated solvency ratio remains above the minimum required level.
The Indian economy and domestic financial system are strong, supported by sound macroeconomic fundamentals and healthy balance sheets. Scheduled commercial banks (SCBs) exhibit strong profitability, with RoA and RoE at decadal highs, and declining NPAs, with GNPA at a multi-year low. SCBs maintain adequate capital and liquidity buffers, validated by stress tests. NBFCs are healthy, with sizable capital buffers, robust interest margins and earnings, and improving asset quality. The insurance sector’s consolidated solvency ratio remains above the required minimum.
“The consolidated solvency ratio of the insurance sector remains above the minimum threshold limit, indicating a healthy position.”
RBI Financial Stability Report, December 2024 discusses the Global Economy and Financial System: remaining resilient, but medium-term risks existing from stretched asset valuations, high public debt, geopolitical conflicts, and emerging technologies. The report states that the Indian Economy and Domestic Financial System is underpinned by strong macroeconomic fundamentals and healthy balance sheets of banks and non-banks. The Scheduled Commercial Banks (SCBs): Exhibit strong profitability, declining non-performing assets, and adequate capital and liquidity buffers. RoA and RoE are at decadal highs, while GNPA is at a multi-year low. Macro stress tests show adequate capital buffers even under adverse scenarios. Non-Banking Financial Companies (NBFCs): Remain healthy with sizable capital buffers, robust interest margins and earnings, and improving asset quality. The Insurance Sector consolidated solvency ratio remains above the minimum threshold. The December 2024 FSR was released on December 30, 2024. The FSDC is the Financial Stability and Development Council. It is a council in India with the mandate to strengthen and institutionalize the mechanism for maintaining financial stability, enhancing inter-regulatory coordination, and promoting financial sector development. The Sub-Committee of the FSDC is responsible for assessing the resilience of the Indian financial system and identifying risks to financial stability. Their assessment is reflected in the FSR.
