Highlights of RBI’s 24th Systemic Risk Survey – June 2023

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The 24th round of Systemic Risk Survey (SRS) published in Reserve Bank of India’s Financial Stability Report, June 2023, provides valuable insights into the perceptions of experts regarding the risks faced by the Indian financial system. The survey indicates that while global, macroeconomic, and financial market risks have receded to some extent, institutional risks have experienced a slight increase. Risks from global spillovers remain a concern, but financial market risks have shifted from a ‘high’ to a ‘medium’ risk category. Macroeconomic risks are perceived to have moderated, with reduced concerns about global growth, commodity price risk, and monetary tightening in advanced economies.

Respondents expressed confidence in the stability of the Indian financial system, with 94% of them maintaining or increasing their confidence. However, confidence in the global financial system declined for 54% of the respondents.

Confidence in the Stability of the Financial System

Source: RBI’s 24th Systemic Risk Survey, Financial Stability Report, June 2023

The survey also indicates some impact on the Indian economy from global spillovers, as three-fourths of the respondents anticipate such effects.

Regarding the Indian banking sector, over 50% of the respondents believe that its prospects will improve or remain stable over a one-year horizon.

Prospects of Indian Banking Sector - Next One Year

 Source: RBI’s 24th Systemic Risk Survey, Financial Stability Report, June 2023

Similarly, expectations regarding asset quality improvement are positive, with 43% foreseeing marginal to considerable improvement. Factors contributing to this optimism include improved corporate earnings, enhanced credit profiles of corporates, prospects of economic recovery, and better monitoring and risk assessment by banks.

Indian Banking Sector - Outlook

Source: RBI’s 24th Systemic Risk Survey, Financial Stability Report, June 2023

Furthermore, respondents expect credit demand to improve, with more than half of them anticipating marginal to considerable growth. Factors driving this expectation include public investment in infrastructure, improved corporate lending, increased working capital demand, growing consumption and investment demand, a pickup in the manufacturing sector, and declining inflation.

However, the survey reveals that risks to financial stability remain a concern. Respondents identified several major risks, including the global growth slowdown, tightness of financial conditions and interest rate risk, rise in commodity prices (including oil), a slowdown in FDI flows and reversal of FII flows, geopolitical risk, and increased climate risk.

In sum, the survey reflects an overall positive sentiment towards the Indian financial system, with improvements expected in the banking sector, asset quality, and credit demand. Nevertheless, the identified risks, both domestic and global, emphasize the need for continued vigilance and proactive measures to safeguard financial stability in the face of challenges such as global economic slowdown, financial tightening, and geopolitical uncertainties.

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