The Financial Stability Report of RBI is an attempt to communicate the risks to financial stability that is beginning to happen. As per latest (December 2012) FSR document, the growth of Indian economy has moderated due to global headwinds and domestic policy uncertainties. Some highlights of the report is given below,
1. Global risks like Euro sovereign debt crisis and US fiscal cliff remain.
2. Investment and consumption expenditure fell due to fall in domestic savings, persistent high inflation and regulatory and environmental issues. This has resulted in decreased growth.
3. Rising gold import resulted in widening current account deficit.
4. No change in inter-connectedness of the system. First time the liquidity contagion in the system has been assessed.
5. Asset quality of banking system is under stress, but still system is capable of tackling any macroeconomic shocks. Since the quality of asset deteriorated, it may be challenging for Indian banks to migrate to Basel III norms.
6. Financial inclusion, Financial literacy and Consumer Protection has been recognized as important for Financial Stability and these has been discussed in this report for the first time.
For the full highlights and report, click here.