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FINANCIAL STABILITY REPORT

ANALYSISy It tells us about the health of Indias financial sector

y The first report was published in March 2010

y RBI issues this report bi-annually i.e. June & Decembery FSR holistically assess the financial sector from risk

perspective

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HIGHLIGHTS OF JUNE

GLOBA LMACR OECONOMIC DEVELOPMENT

y Global risk scenario

y Increasing uncertainty 

DOMESTIC MACR OECONOMIC DEVELOPMENT

y

Downside risk to GDP growthy Inflation

y Management of government expenditure

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FIN A NCIA LMARKET

y Stress free financial market

y Liquidity in system

y Government bond yield

FIN A NCIA L INSTITUTIONy  W ell capitalized financial sector

y Reliance on market borrowing

y Robust growth in credit warrant

y Growth of insurance sector

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R EGUL ATORY ENV IR OMENT

y Amendment to banking legislationy Challenges under Basel-2 & Basel-3y Importance of NBFC

FIN A NCIA L MARKET INFRASTRUCTUR E

y Robust operational performancey Integration & interrelationship amoung various

segmenty

Management of liquidity risk

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HIGHLIGHTS OF DECEMBERy Domestic financial system remained robust

y Macro financial stress test

y Financial stability map & indicator

MACR OECONOMIC ENV IR OMENT

y Deceleration of domestic demand component

y Inflation remain elevated

y Increase in risk of external sector

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FIN A NCIA LMARKET

y Market remain volatile

y Depreciation creating external deficit

y Monitoring of equity market microstructure

FIN A NCIA L INSTITUTIONS SOUNDNESS &R ESILIENCE

y Deterioration in financial indicator

y Resilience of urban bank & NBFCs

y Stability of financial market

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P AYMENT & SETTLEMENT SYSTEM

y RTGS system

CR OSS-SECTION A L EXPOSUR E

y Banking system distinctly tiered

DISTR ESS DEPENDENCIES BET WEEN BA NKS

y Assessment of distress dependencies

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MACROECONOMIC OUTLOOKy Inflation risk have stayed & high risk likely to

persist during Q2 of 2011-12

y Moderation in inflation is expectedy Risk factor adversely impact aggregate demand

y Continuation of anti-inflationary stance

y

Marginal moderation in economic activity 

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INFL ATION STAYS  WHILE GR OW TH MODERATES

y Inf lation stayed high since December 2010 due to

cost-push & demand side factory 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 costaffect profit margin

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y The three important factors that affect growth &inflation are-

     Significant departure of monsoon     Collapse of global commodity price bubble     Euro zone debt crisis

yDecline in Industrial activity 

y Uncertainty of exportsy Growth of corporate salesy Increase in wages

y Breaking internal dynamicsy Controlling inflation

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