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Data Analysis and Processing Guide

The report provides new tools for systemic risk assessment, including the Systemic Risk Survey and Systemic Liquidity Indicator. A network model was upgraded to assess interconnectedness within the entire financial system and analyze the network structure of the banking system. Macrofinancial stress tests analyzed the impact of macroeconomic shocks on the financial system, finding the probability of distress for the entire banking system to be low in the recent period. While Indian banks remain robust, risks include a rise in non-performing assets, high credit growth to the power sector, contagion from European markets, and a potential domestic growth slowdown.

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7 views1 page

Data Analysis and Processing Guide

The report provides new tools for systemic risk assessment, including the Systemic Risk Survey and Systemic Liquidity Indicator. A network model was upgraded to assess interconnectedness within the entire financial system and analyze the network structure of the banking system. Macrofinancial stress tests analyzed the impact of macroeconomic shocks on the financial system, finding the probability of distress for the entire banking system to be low in the recent period. While Indian banks remain robust, risks include a rise in non-performing assets, high credit growth to the power sector, contagion from European markets, and a potential domestic growth slowdown.

Uploaded by

Puneet Singh
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

Systemic Risk Assessment

New tools for risk assessment is given in this report are FSR. There are some other also in addition to FSR . The Systemic Risk Survey was conducted of select individuals from banks, financial institutions, insurance companies, asset management companies, non-banking financial companies, primary dealers and broking firms. The survey identified deterioration in the asset quality of banks as the most significant risk to the financial system followed by risks from heightened market volatility, including exchange rate volatility, global risks, risks from high inflation and high interest rates. The Systemic Liquidity Indicator (SLI), showed that there was moderate increase in funding difficulties in September and October, 2011. A network model (introduced in the previous FSR), which sought to analyse the contagion risks arising from an initially idiosyncratic problem that becomes more widespread, has been upgraded in this FSR to include an assessment of the interconnectedness in the entire financial system and to further probe into the nature of the network of the banking system and of the financial system. The analysis showed that the Indian banking system remains clustered and is also distinctly tiered. It also showed that Insurance and mutual fund sector, being the liquidity providers are vulnerable to any disturbances in the banking system. Stability measures too have been enhanced to model the distress dependencies in the banking sector, among specific groups of banks and that associated with an individual bank. Finally, a series of macrofinancial stress tests were done to focus on the impact of macroeconomic shocks on the financial system recognising the fact that the worsening of credit risk conditions is one of the most dominant sources of bank risk. The probability of distress of entire banking system was observed to be very low during the recent period. Also, the expected number of banks that become distressed given that at least one bank becomes distressed has been low and stable for the last one and half years. According to FSR, Indian banks remain robust, notwithstanding a small decline in capital adequacy and rise in NPA levels, mainly in retail, real estate, infrastructure and priority sectors, in the recent past. The growth rate of credit to power sector has been much higher than the aggregate banking sectors credit growth and could unravel in case of a sharp economic downturn. The rapid spread of contagion from the European sovereign bond markets to international banks could trigger further deleveraging. This could raise the cost of foreign currency borrowing for both, Indian banks and firms. A slowdown in domestic growth could also raise the risks for the banking system. While Indian banks will migrate to Basel III from a position of strength, the new standards may require adjustments in lending behaviour. Other forms of microfinance stress testing are 1 Vector autoregressive model and other is multivariance regression

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