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Source says govt frets over negative signals of RBI stress tests

Monday, Jan 11, 2021

 

By T. Bijoy Idicheriah

 

MUMBAI – The government has expressed reservations about the possible negative signals the Reserve Bank of India's stress tests could have on public sector banks, a banking industry source said.

 

The stress test results are part of the Financial Stability Report, which is likely to be released today.

 

Despite the government's reservations, the RBI is unlikely to make changes to the report, the source told Cogencis.

 

The Financial Stability Report, which encompasses combined views of the Financial Stability and Development Council, is released by the RBI.

 

The Financial Stability and Development Council, headed by Finance Minister Nirmala Sitharaman, consists of all financial regulators, including the RBI and the Securities and Exchange Board of India.

 

"The government is a part of the FSDC, which clears the Financial Stability Report, and has seen all the drafts," the source said.

 

"The report merely showcases the bad loans at banks that can emerge under various scenarios and stress tests, and the resultant impact on capital for these institutions," the source said.

 

The report contains results of stress tests of banks and non-bank finance companies under various scenarios.

 

Higher non-performing assets will mean rise in provisions and possible need for higher capital infusion into public sector banks by the government.

 

The Financial Stability Report is normally released bi-annually in June and December. The last report was delayed by a month because of the lockdown following the outbreak of COVID-19.

 

The delay in December report could possibly be because of the reservations expressed by the government.  End  

 

Edited by Subham Mitra

 

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This copy was first published on the Cogencis WorkStation

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