Finance Minister-led Financial Stability and Development Board discusses pressurized assets issue

Nirmala Sitharaman

The Financial Stability and Development Board (FSDC) headed by Finance Minister Nirmala Sitharaman deliberated Friday on managing stressed assets and lenders’ exposure to various sectors, amid fears of a spike in tension in the banking system once all regulatory abstentions, prolonged in the wake of the pandemic, are canceled.

The Council, which is also made up of the main regulators of the financial sector, has decided to keep a continuous vigilance on the financial conditions.

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

Banks’ gross non-performing asset ratio (GNPA) could reach 9.8% by March 2022, in a baseline scenario, up from 7.48% in March 2021, the Reserve Bank of India said in its report. on Financial Stability (FSR) in July. However, in a severe stress scenario, bad debts could reach 11.22%, he warned. However, the report states that banks have sufficient capital, both at the aggregate and individual level, even under stress.

In a recent interview with FE, Chief Economic Advisor Krishnamurthy V Subramanian said that with 88% coverage and 14% capital adequacy (CRAR), public lenders, the main pillar of the banking system, could absorb any shock from bad debts. .

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

Besides Sitharaman, the FSDC meeting brought together Bhagwat Kishanrao Karad and Pankaj Chaudhary, Ministers of State for Finance; RBI Governor Shaktikanta Das; Injeti Srinivas, President of the Authority of International Financial Services Centers; secretaries of various departments of the Ministry of Finance and Social Affairs; Sebi’s president, Ajay Tyagi; the Chairman of the Pension Fund Development and Regulation Authority, Supratim Bandyopadhyay; the Chairman of the Insolvency and Bankruptcy Board of India, MS Sahoo; Member of the Insurance and Regulatory Development Authority of India (Non-Life) TL Alamelu and Chief Economic Advisor Subramanian.

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