Why is it in the news?

• The Financial Stability Report (FSR) is released biannually, providing a comprehensive assessment.
• The report is based on the evaluations and findings of the Sub-Committee of the Financial Stability and Development Council (FSDC).

Key Highlights of FSR 2023

• The FSR underscores the enhanced resilience of the Non-Banking Financial Companies (NBFCs) sector.
• The Capital-to-Risk Weighted Assets Ratio (CRAR), a crucial metric for evaluating financial health, has shown improvement. A higher CRAR indicates increased financial resilience and capacity to absorb potential risks.
• The Gross Non-Performing Asset (GNPA) ratio is reported to be on a downward trajectory. This signifies a positive trend in asset quality, indicating a reduction in non-performing assets within the financial system.
• The report notes an acceleration in credit growth during the post-pandemic period.

About Non-Banking Financial Companies (NBFCs)

• NBFCs are companies registered under the Companies Act, 1956. They operate in various financial activities such as loans, advances, and acquisition of securities.
• NBFCs exclude institutions with their principal business in agriculture, industrial activity, trading, or the purchase or sale of immovable properties.
• NBFCs are primarily regulated and governed by the Reserve Bank of India (RBI). However, some NBFCs may also fall under the regulatory purview of other authorities such as the Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI), etc.
• Cannot accept demand deposits.
• Not part of the payment and settlement system and cannot issue cheques drawn on themselves.
• Deposit insurance facility is not available to depositors of NBFCs.
• NBFCs play a pivotal role in bridging the gap between traditional banks and customers, particularly in areas where the reach of traditional banks is limited. They contribute significantly to financial inclusion and access to credit.