NPA Crisis

NPAs, balance sheet repair testing banking resilience: International Monetary Fund


Mains Paper 2: IR | Important International institutions, agencies & fora, their structure, mandate

From UPSC perspective, the following things are important:

Prelims level: IMF, FSAP, FSSA, GDP

Mains level: Vulnerability of PSBs and related issues

India’s financial sector is facing considerable challenges

  1. With high non-performing assets and repair of corporate balance sheets testing the resilience of the banking system, India’s financial sector is facing considerable challenges
  2. This is also holding back investment and growth
  3. This was said in International Monetary Fund’s Financial Sector Assessment Programme (FSAP) report

Financial System Stability Assessment (FSSA)

  1. The last FSSA for India was done in 2011
  2. It is conducted jointly by a team of the IMF and the World Bank
  3. The FSAP aims at having a very comprehensive and in-depth view of the financial system in countries with big systemic financial systems
  4. The FSAP took stock of the considerable progress made in strengthening financial sector oversight and identified areas where scope for further improvement remains

Public sector banks vulnerable

  1. Stress tests show that a group of public sector banks (PSBs) are highly vulnerable to further declines in asset quality and higher provisioning needs
  2. Capital needs range from 0.75 percent of GDP in the baseline to 1.5 percent of GDP in the severe adverse scenario

Role of state

  1. The state retains an important footprint in the system via ownership of large financial institutions, captive government financing, and directed credit to priority sectors
  2. It has also taken measures like strengthening the RBI’s de jure independence, expanding other financial regulators’ resources, introducing a risk-based solvency regime and extending risk-based supervision for insurers; and unifying the oversight of commodities markets

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