Financial Stability And Development Council, Discusses Stressed Asset Issue

By BW CFO World Online Bureau

Stressed Asset Issue and lender’s exposure to various sectors discussed by the Financial Stability and Development Council, led by Finance Minister Nirmala Sitharaman

The Financial Stability and Development Council (FSDC) under FM Nirmala Sitharaman deliberated on the management of the stressed assets and lender’s exposure to various sectors, amid fears of a spike in stress in the banking sector 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 the Insolvency and Bankruptcy Code (IBC) processes, data sharing mechanism of government authorities, Internationalization of India Rupee and pension-sector related issues are among the issues that were discussed.

By march 2022, It is expected that the Gross Non-Performing Assets (GNPAs) ratio of banks may rise to 9.8 per cent, under baseline scenario, from 7.48 per cent in march 2021. However under a severe stress scenario, the bad loans may shoot up to 11.22 per cent even though the report said banks have sufficient capital under stress at all levels.  Chief economic advisor Krishnamurthy V Subramanian said with 88% provision coverage and 14 per cent of capital adequacy (CRAR), state-run lenders, the principal pillar of the banking system, could absorb any shock emanating from bad loans.

Apart from Sitharaman, the FSDC meeting was attended by Bhagwat Kishanrao Karad and Pankaj Chaudhary, ministers of state for finance; the governor of RBI 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.