Finance minister-led Financial Stability and Development Council discusses stressed asset issue

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September 04, 2021 6:00 AM

The Council, which also consists of key financial-sector regulators, decided to keep a continuous vigil on financial conditions.

Nirmala Sitharaman

The Financial Stability and Development Council (FSDC) under finance minister Nirmala Sitharaman on Friday deliberated on the management of stressed assets and lenders’ exposure to various sectors, amid fears of a spike in stress in the banking system once all regulatory forbearances, extended in the wake of the pandemic, are rolled back.

The Council, which also consists of key financial-sector regulators, decided to keep a continuous vigil on financial conditions.

Strengthening institutional mechanism for financial stability analysis, financial inclusion, framework for resolution of financial institutions and issues related to IBC (Insolvency and Bankruptcy Code) processes, data sharing mechanisms of government authorities, internationalisation of the Indian Rupee and pension- sector-related issues are among the issues that were discussed, according to an official statement.

The gross non-performing assets (GNPAs) ratio of banks may surge to 9.8% by March 2022, under a baseline scenario, from 7.48% in March 2021, the Reserve Bank of India said in its Financial Stability Report (FSR) in July. However, under a severe stress scenario, the bad loans may shoot up to 11.22%, it cautioned. However, the report said banks have sufficient capital, both at the aggregate and individual level, even under stress.

In an interview to FE recently, chief economic advisor Krishnamurthy V Subramanian said with 88% provision coverage and 14% of capital adequacy (CRAR), state-run lenders, the principal pillar of the banking system, could absorb any shock emanating from bad loans.

Friday’s meeting also deliberated on the various mandates of the FSDC. These are financial stability, financial sector development, inter-regulatory Coordination, financial literacy, financial inclusion, and macro-prudential supervision of the economy, including the functioning of large financial conglomerates.

Apart from Sitharaman, the FSDC meeting was attended by Bhagwat Kishanrao Karad and Pankaj Chaudhary, ministers of state for finance; RBI governor Shaktikanta Das; International Financial Services Centres Authority chairman Injeti Srinivas; secretaries of various departments of the finance and corporate affairs ministry; Sebi chairman Ajay Tyagi; Pension Fund Regulatory and Development Authority chairman Supratim Bandyopadhyay; Insolvency and Bankruptcy Board of India chairman MS Sahoo; Insurance and Regulatory Development Authority of India member (non-life) TL Alamelu and chief economic advisor Subramanian.

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