Foreword

List of Select Abbreviations

Overview

Chapter I : Macroeconomic Risks

Chapter II : Financial Markets

Chapter III : Financial Institutions: Soundness and Resilience

Chapter IV : Financial Sector Regulation and Infrastructure

Chapter V : Systemic Risk Assessment

Systemic Risk Survey

Systemic Liquidity Indicator

Network Analysis of the Financial System

Banking Stability Measures and Expected Shortfall

Macro Stress Testing

Annex: Methodologies

LIST OF BOXES

2.1 The Greek Dilemma

3.1 Power and Airlines : Sectors under Stress

3.2 Stress Testing of Derivatives Portfolio of Select Banks

3.3 Gold Loan Companies and Associated Risks

4.1 Introduction of Dynamic Loan Loss Provisioning Framework for Banks in India

4.2 Increased volatility in the foreign exchange market and CCIL’s US$/INR settlement

5.1 Network Statistics of the Banking System

5.2 Macro Stress Test - Quantile Regression Approach

LIST OF CHARTS

1 Financial Stability Map

1.1 Macroeconomic Risk Map

1.2 Slower Global Recovery in 2012

1.3 Gross Financing Needs - AEs

1.4 Growth in World Trade Volume

1.5 Baltic Dry Index at Low Level

1.6 GDP Growth in BRICS Economies

1.7 Trends in Quarterly GDP growth (Y-o-Y)

1.8 Growth in Drivers of Domestic Demand

1.9 Rapid increase in Wholesale Prices of Select Commodities

1.10 Relationship between the Twin Deficits

1.11 Trends in Gold Imports

1.12 Revenue Expenditure as proportion to Total Expenditure of Centre

1.13 Capital Expenditure as proportion to Total Expenditure of Centre

1.14 Revenue Deficit as a proportion of Gross Fiscal Deficit of Centre

1.15 Growth in Retail Credit, NPA and PFCE

1.16 Falling Profit Margins and Rising Interest Costs

2.1 Money Market Spreads in 2012 in US Dollars and Euros

2.2 Sovereign CDS Spreads in Europe in 2012

2.3 Volatilities of Various Asset Classes

2.4 Interest Rate Differential between Indian Rates and those of US and Euro

2.5 Financial Markets Stability Map

2.6 Financial Markets Stability Indicator

2.7 Indian Government Bond Yields in 2012

2.8 Currencies of EDEs with Current Account Deficits

2.9 Weekly Returns of Nifty and Defty in 2012

3.1 Banking Stability Map

3.2 Banking Stability Indicator

3.3 Claims by Indian Banks on Select Countries – Position as on Dec 2011

3.4 Claims on Indian Banks by Select Countries as Ratio of Indian Banking Sector Assets

3.5 Growth Rate of Bank Credit to Select Sectors

3.6 Credit Growth in Various Sectors - Bank Group Wise

3.7 CD/ID ratio and Incremental CD/ID ratio of SCBs

3.8 Growth Rate of Select Components of Balance Sheet

3.9 Maturity Profile of Deposits and Advances

3.10 CRAR of Bank Groups

3.11 Ratio of Net NPAs to Capital of Banks in Select Countries

3.12 Trend in Growth Rate of Gross NPAs vis-à-vis Loans & Advances

3.13 Slippages as Ratio of Recoveries

3.14 Growth of Restructured Accounts vis-à-vis NPAs and Loans

3.15 NPA Ratios of SCBs

3.16 Growth Rate of NPAs of Select Sectors

3.17 Exposure of SCBs to Power Sector

3.18 NPA and Restructured Accounts in Power Sector

3.19 Bank Credit to Airlines Sector

3.20 Top 10 Banks in terms of Credit to Airlines Sector

3.21 CRAR in the Eventuality of Write off of Existing Stock of NPAs (net)

3.22 Growth Rate of Earnings

3.23 Profitability Ratios

3.24 OBS Assets (Notional Principal) as a Ratio of Balance Sheet Assets

3.25 Positive and Negative MTM as a Ratio of Capital Funds for Sample of Banks

3.26 Net MTM as a Ratio of Capital Funds for Sample of Banks

3.27 Credit Growth – NBFCs vis-à-vis Banks

3.28 Negative MTM Post-Stress (Scenario) as Ratio of Capital Funds

3.29 Negative MTM Post-Stress (Sensitivity) as Ratio of Capital Funds

3.30 Change in Net MTM–Scenario Analysis

3.31 Change in Net MTM–Sensitivity Analysis

3.32 Financial Soundness Indicators of NBFC-ND-SIs

3.33 Financial Soundness Indicators of Scheduled UCBs

3.34 Growth of Select Balance Sheet Components of RRBs – March 2012

3.35 Gross NPA Ratio of RRBs

3.36 Credit Risk : Gross Credit- Distribution of Stressed CRAR of Banks

3.37 Interest Rate Risk - Banking Book - Distribution of Stressed CRAR of Banks

3.38 Bottom-Up Stress Testing: Distribution of Stressed CRAR of Select Banks

3.39 Impact of Shocks on Capital Position: SUCBs – Mar 2012

3.40 Impact of Liquidity Risk Shocks: SUCBs – Mar 2012

4.1 RWA Density across Regions

4.2 Contribution to RWAs of SCBs

4.3 RWA Density across Bank Groups – Mar 2012

4.4 RWA Density of SCBs

4.5 Increase in initial margin on two days in the review period during which the exchange rate was most volatile

4.6 Settlement Lags in RTGS

4.7 Daily average customer transactions settled within one minute

4.8 Daily average interbank transactions settled within one minute

4.9 Average settlement values of associate members as a per cent of total settlement values

4.10 CCIL’s exposures to Designated Settlement Banks

4.11 Outstanding notional IRS volumes at the end of the month

4.12 Share of insured deposits of different categories of banks

4.13 Cross-Country Comparison of Coverage Levels at end-2010

4.14 Cross-Country Comparison of Reserve Ratios at end-2010

5.1 Specific risks identified in the Risk Survey, October 2011

5.2 Specific risks identified in the Risk Survey, April 2012

5.3 Risks most difficult for the country to manage

5.4 Risks most difficult for financial institutions to manage

5.5 Survey responses on the probability of ‘high’ impact event in the global financial system in the short term

5.6 Survey responses on the probability of ‘high’ impact event in the global financial system in the medium term

5.7 Survey responses on the probability of ‘high’ impact event in the domestic financial system in the short term

5.8 Survey responses on the probability of ‘high’ impact event in the domestic financial system in the medium term

5.9 The Systemic Liquidity Index

5.10 Trends in the interbank market

5.11 Percentage change of activities over a one year period in the interbank market

5.12 Short Term Funds as a Ratio of Total Borrowing of SCBs (March 31, 2012)

5.13 Short Term Funds as a Ratio of Total Outside Liabilities (March 31, 2012)

5.14 Network of the Banking System – March 31, 2011

5.15 Network of the Banking System – March 31, 2012

5.16 Contagion due to the failure of a top net borrower

5.17 Potential loss to the banking system due to failure of top banks

5.18 Potential loss distribution in the banking system due to failure of banks

5.19 Insurance companies’ investments in different bank groups

5.20 MFs’ investments in different bank groups

5.21 Movement of JPoD and BSI

5.22 Movement of Toxicity Index of Banks

5.23 Movement of Vulnerability Index of Banks

5.24 Systemic Inter-linkages among the Banks: Cascade Effect

5.25 Domino Impact of Banks on the Entire System: Cascade Effect

5.26 Expected Shortfall to Total Assets: System Level

LIST OF TABLES

1.1 External Sector Vulnerability Indicators

3.1 Consolidated Foreign Claims of European Banks

3.2 Asset Quality of Select Sectors - Mar 2012

3.3 Credit Risk: Gross Credit - Impact on Capital and NPAs

3.4 Credit Risk: Sectoral – Impact on Capital and NPAs

3.5 Credit Risk: Concentration- Impact on Capital and NPAs

3.6 Interest Rate Risk: Banking Book-Impact on Banks

3.7 Liquidity Risk: Impact on Banks

4.1 Details of Imposition of Volatility Margin during 2011-12

5.1 Impact of a Global Systemic Event on the Domestic Financial System

5.2 Confidence in the Global and Domestic Financial Systems

5.3 Contribution of Insurance companies and MFs to Banks Borrowings

5.4 Percentage distribution of insurance companies and MFs in investment/ lending in the banking system

5.5 Macroeconomic Scenario Assumptions

5.6 Projected Gross NPA ratio using Different Models

5.7 Projected CRAR using Different Models

5.8 Bank-group-wise Projected NPAs

5.9 Bank-group-wise Projected CRAR

5.10 Projected Sectoral Gross NPA ratio