financial stability

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    ूेस    ूकाशनी    PRESS   RELEASE   संचार   िवभाग ,   किय    कायारलय  ,   एस  . बी  . एस  . मागर ,   मु ंबई  ‐ 400001    _____________________________________________________________________________________________________________________ DEPARTMENT   OF   COMMUNICATION ,   Central   Office,   S.B.S.Marg,   Mumbai ‐ 400001   फोन  /Phone:   91   22   2266   0502   फैस  /Fax:   91   22   22660358   भातीय   िज़वर   बैक   RESERVE   BANK   OF   INDIA   वेबसाइट   :   Website   :   इ  ‐ मेल    email :  June 28, 2012 RBI releases Financial Stability Report : June 2012 The Reserve Bank of India today released the fifth issue of theFinancialStability Report (FSR)against the backdrop of worrisome global and domesticmacroeconomic developments. Through these half-yearly FSRs, the Reserve Bankattempts to share the results of its macro prudential surveillance with the market, toencourage debate and to create awareness of the vulnerabilities in the system andeven to suggest prompt corrective action. As in the case of the previous FSRs, thisissue of the Report reflects the collective assessment of the Sub Committee of theFinancial Stability and Development Council (FSDC) on potential risks to financialstability. Highlights: (1) The financial system of the country remains robust despite increase in risks tostability primarily due to global risks and domestic macroeconomic conditions. (Overview: Para 1    ) (2) The Reserve Bank’s second Systemic Risk Survey revealed concerns aboutthe evolving global risks and a host of domestic factors. Respondents,however, remained confident about the stability of the domestic financialsystem. (Overview: Para 2 ; Chapter 5: para 5.1 – 5.6     ) (3) Risks to domestic growth are accentuated by fiscal and external sectorimbalances. Inflationary pressures have moderated but inflation risks remain. (Overview: Para 7-11; Chapter 1: para 1.7 – 1.30     ) (4) Foreign exchange and equity markets have corrected and continue toexperience heightened volatility. (Overview: Para 12 ; 14 ; Chapter 2: para 2.12 and 2.15     )) (5) Banks remain resilient to credit, market and liquidity risks and would be able towithstand macroeconomic shocks, given their comfortable capital adequacypositions. (Overview: Para 22 ; Chapter 3: Para 3.41-3.49 ; Chapter 5: Para 5.29-5.33  ) (6) Asset quality concerns, however, persist and liquidity pressures haveintensified. Credit and deposit growth in the banking sector have deceleratedwhile banks’ reliance on borrowed funds has increased. (Overview: Para 16 ,17 ; Chapter 3: Para 3.6-3.11; 3.13-3.20  )  2 (7) Distress dependencies between banks have risen. The analysis of the networkof the Indian banking system reveals that the systemic importance of the ‘mostconnected’ banks has increased, warranting a closer monitoring of the banks. (Overview: Para 18 ;Chapter 5: para 5.16-5.18 and para 5.22-5.28     )) (8) The policy framework for reforms, started after the global financial crisis, hascrystalised. Several countries have announced their respective national policyframeworks for implementation of the reforms, e.g. migration to Basel III.Differences between such policy frameworks have led to concerns about crossborder consistency.  (Overview: Para 24 ; Chapter 4: 4.1-4.2) (9) There could be unintended consequences of the implementation of the reformmeasures for emerging economies, like India, e.g. due to the deleveraginginduced by the new capital and liquidity standards. (Overview: Para 24 ; Chapter 4: 4.1-4.2  ) (10) Banks in India will migrate to Basel III from a position of relative strength butthere could be challenges in the form of higher cost of capital.   (Overview: 25 ; Chapter 4: para 4.3-4.5     ) (11) The new Principles for Financial Market Infrastructure, issued by theCommittee on Payment and Settlement Systems (CPSS) and the InternationalOrganization of Securities Commissions (IOSCO), propose stringent riskmanagement requirements, which could necessitate a relook at the riskmanagement practices of domestic central counterparties. (Overview: 29 ; Chapter 4: para 4.36 –4.37     ) (12) Clearing Corporation of India Limited (CCIL)’s financial resources and itsliquidity as well as credit risk management framework needs to be fine-tunedto take cognisance of the significant un-collateralised intraday exposures to itsdesignated settlement banks. (Overview: Para 29 ; Chapter 4: para 4.25-4.28     )  The next FSR is scheduled to be published in December 2012. Alpana KillawalaPress Release : 2011-2012/2089 Chief General Manager
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