The Central Bank, Reserve Bank of India released its 2nd Financial Stability Report (Firstone released in March 2010) and thus, it enters into the selected league of countries which publish Financial Stability Review/Report on a periodic basis. In the wake of the global economic crisis, it has become prudent for the Central Banks across the global to assess their financial stability and conduct many stress tests so as to test the nerves of the economies.
Broadly, the report covers that the financial sector remains stress free; however, the intermittent capital flows poses a big challenge as these kinds of flows are very volatile and may get reversed at time of extreme volatilities in origin countries. However, these portfolio inflows have helped financing the burgeoning current account deficit.
It also cautioned that the global economic recovery remain uncertain especially the European region needs to be watched out. Prolonged low interest rates in developed countries encourages higher systematic leverage and also creates a yield seeking environment wherein investors get into crowded traded.
The report also pointed out some soft domestic points where an eye needs to put up. While the domestic growth remains buoyant, the high domestic inflation is a cause of concern due to structural issues. The downside risks still remain and the stressed liquidity conditions warrant caution too. The bubble up in housing sector, especially in some particular regions like Mumbai, Noida, Bangalore and
other cities have prompted tightening of prudential norms which included increasing the provisioning ratio and raising the LTV ratio for higher loans. Read more…
other cities have prompted tightening of prudential norms which included increasing the provisioning ratio and raising the LTV ratio for higher loans. Read more…
2010 would be remembered a year in Financial Regulation with the passing of Dodd-Frank Act in United States to regulate banks and other financial institutions. We hope that the Central Bank will come with regulations in untouched domains and will take them under their umbrella.
Also read other countries Financial Stability Report/Review which are given below:
Austria – Dec 2010
China – Sept 2010
Chile – Sept 2010
Germany - 2010
Global by IMF – July 2010
Greece – July 2010
Ireland – 2007
Italy – Dec 2010
Mauritius – Dec 2010
New Zealand – May 2010
Portugal – Nov 2010
Singapore – Nov 2010
Taiwan – May 2010
Happy Reading!
- Amar Ranu
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