Gs Paper-3
Syllabus: Indian Economy
Context:
Reserve Bank of India (RBI) released its bi-annual Financial Stability Report (FSR)
What does the report say:
- On NPA: The asset quality of the banking system has improved with the gross non-performing assets (GNPA) ratio declining from 7.4 per cent in March 2021 to a six-year low of 5.9 per cent in March 2022.
- Reason: Banks have reduced the GNPA ratio through recoveries, write-offs and reduction in slippages.
- Provisioning coverage ratio (PCR): It improved to70. 9 per cent in March 2022 from 67.6 per cent a year ago.
- PCR is the percentage of funds that a bank sets aside for losses due to bad debts. A high PCR can be beneficial to banks to buffer themselves against losses if the NPAs start increasing faster.
- Buffer to withstand shocks: According to the RBI’s report, banks, as well as non-banking financial institutions, have sufficient capital buffers to withstand shocks, and support from it during Covid helped banks arrest their GNPA ratio.
Concerns Raised:
- Global spillover:g. US rate increase and the threat of recession; Ukrain crisis; Oil price rise.
- Risks of Fintech: The report cautioned that the advent of fintech has exposed the banking system to new risks such as safeguarding of data privacy, cyber security, consumer protection, competition and compliance with AML (anti-money laundering) policies.
- The Indian fintech industry —is amongst the fastest growing Fintech markets in the world.
- India has the highest fintech adoption rate globally (87 per cent), receiving funding of $8.53 billion during 2021-22.
- Risk from BigTechs (big technology firms): They can scale up rapidly and pose risk to financial stability, which can arise from increased disintermediation of incumbent institutions.
- Moreover, complex intertwined operational linkages between BigTech firms and financial institutions could lead to concentration and contagion risks and issues relating to potential anti-competitive behaviour.
- Cryptos a ‘clear danger’: RBI Governor termed cryptocurrencies as a “clear danger” and anything that derives value based on make-believe, without any underlying, is just “speculation under a sophisticated name”.
Insta Links
RBI to regulate bigtech and fintech
Practice Questions
Q. “Cryptocurrency will lead the next phase of the digital revolution. India must not miss the bus.” Critically examine. (15M)
Q. In India, which one of the following is responsible for maintaining price stability by controlling inflation? (UPSC CSE 2022)
- Department of Consumer Affairs
- Expenditure Management Commission
- Financial Stability and Development Council
- Reserve Bank of India
Answer: D
Q. Which of the following statements best describes the term ‘Scheme for Sustainable Structuring of Stressed Assets (S4A)’, recently seen in the news? (UPSC CSE 2017)
(a) It is a procedure for considering the ecological costs of developmental schemes formulated by the Government.
(b) It is a scheme of RBI for reworking the financial structure of big corporate entities facing genuine difficulties.
(c) It is a disinvestment plan of the Government regarding Central Public Sector Undertakings.
(d) It is an important provision in The Insolvency and Bankruptcy Code’ recently implemented by the Government.
The FSR which is published biannually by Financial Stability and Development Council (FSDC – headed by the Governor of RBI) on risks to financial stability and the resilience of the financial system.
The Report also discusses issues relating to development and regulation of the financial sector.
Terms:
- NPA: In most cases, debt is classified as non-performing, when the loan payments have not been made for a minimum period of 90 days.
- Gross non-performing assetsare the sum of all the loans that have been defaulted by the individuals who have acquired loans from the financial institution.
- Net non-performing assetsare the amount that is realized after provision amount has been deducted from the gross non-performing assets.
Answer: B
