Apex bank releases FSR

  It is also an attempt at institutionalising the implicit focus and making financial stability an integral driver of the policy framework.

The FSR is the first of these reports which will focus on reviewing the nature, magnitude and implications of risks that have bearing on the macroeconomic environment, financial institutions, markets and infrastructure.

 “It will also assess the resilience of the financial sector through stress tests.  It is hoped that FSR will emerge as one of the key instruments for directing pre-emptive policy responses to incipient risks in the financial system.”  The FSR will be a key supplement to the evolving institutional arrangements in the coming months.  The specific composition and the role of the proposed Financial Stability and Development Council (FSDC) is yet to crystallize, but the role of the apex bank in any future arrangement, as regards financial stability will continue to be critical, said an RBI release here.

While detailing the prevailing financial system in India, FSR also gave some background on past financial stability initiatives. 

The forceful and coordinated global policy response to the crisis has facilitated the relative stabilisation of global markets and easing of credit risk concerns after the financial turmoil, especially in the second half of 2009.

Giving an outlook for India, it said, there are evident signs of recovery in the growth increasingly taking hold. Hence, the process of monetary policy exit has already begun. Early steps to exit from the fiscal stimulus measures have also been initiated with the Union Budget for 2010-11 committing a return to the process of fiscal consolidation. The process of fiscal consolidation should facilitate better monetary management.

In recognition of the government’s intent to bring down deficit and debt levels, along with the positive outlook on domestic economic growth, S&P has recently upgraded its outlook on India from “Negative” to “Stable”. Going forward, however, there are several factors which may have a bearing on financial stability considerations, including inflationary pressures and expectations, management of government borrowing program, and capital flows.