FINANCIAL STABILITY REPORT ANALYSIS

y It tells us about the health of India s financial sector y The first report was published in March 2010 y RBI issues this report bi-annually i.e. June & December y FSR holistically assess the financial sector from risk

perspective

HIGHLIGHTS OF JUNE
GLOBAL MACROECONOMIC DEVELOPMENT

y Global risk scenario y Increasing uncertainty

DOMESTIC MACROECONOMIC DEVELOPMENT

y Downside risk to GDP growth y Inflation y Management of government expenditure

FINANCIAL MARKET

y Stress free financial market y Liquidity in system y Government bond yield

FINANCIAL INSTITUTION

y Well capitalized financial sector y Reliance on market borrowing y Robust growth in credit warrant y Growth of insurance sector

REGULATORY ENVIROMENT
y Amendment to banking legislation y Challenges under Basel-2 & Basel-3 y Importance of NBFC

FINANCIAL MARKET INFRASTRUCTURE

y Robust operational performance y Integration & interrelationship amoung various

segment y Management of liquidity risk

HIGHLIGHTS OF DECEMBER
y Domestic financial system remained robust y Macro financial stress test y Financial stability map & indicator

MACROECONOMIC ENVIROMENT y Deceleration of domestic demand component y Inflation remain elevated y Increase in risk of external sector

FINANCIAL MARKET

y Market remain volatile y Depreciation creating external deficit y Monitoring of equity market microstructure
FINANCIAL INSTITUTIONS SOUNDNESS & RESILIENCE

y Deterioration in financial indicator y Resilience of urban bank & NBFCs y Stability of financial market

PAYMENT & SETTLEMENT SYSTEM

y RTGS system
CROSS-SECTIONAL EXPOSURE

y Banking system distinctly tiered

DISTRESS DEPENDENCIES BETWEEN BANKS

y Assessment of distress dependencies

MACROECONOMIC OUTLOOK
y Inflation risk have stayed & high risk likely to

persist during Q2 of 2011-12 y Moderation in inflation is expected y Risk factor adversely impact aggregate demand y Continuation of anti-inflationary stance y Marginal moderation in economic activity

INFLATION STAYS WHILE GROWTH MODERATES

y Inflation stayed high since December 2010 due to

cost-push & demand side factor y Growth in tune with trend y Risk in growth sustainability y Slowdown in overall economic activity y Rising input & borrowing cost y Lower optimism & increasing raw material cost affect profit margin

y The three important factors that affect growth &

inflation areSignificant departure of monsoon Collapse of global commodity price bubble Euro zone debt crisis
y Decline in Industrial activity y Uncertainty of exports y Growth of corporate sales y Increase in wages y Breaking internal dynamics y Controlling inflation