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Editorials/Opinions Analysis for UPSC – 04 January 2022


  1. Key takeaways from RBI’s Financial Stability Report
  2. NGOs and corporates Aiding in governance

Key takeaways from RBI’s Financial Stability Report


By the end of December 2021, the Reserve Bank of India (RBI) released its latest Financial Stability Report (FSR).


GS-III: Indian Economy (Growth and Development of Indian Economy)

Dimensions of the Article:

  1. What is the Financial Stability Report (FSR)?
  2. Highlights of the latest FSR (December 2021)

What is the Financial Stability Report (FSR)?

  • The FSR is one of the most crucial documents on the Indian economy published twice each year by the Reserve Bank of India (RBI) – and it presents an assessment of the health of the financial system.
  • The FSR includes contributions from all the financial sector regulators (details of the current status of different financial institutions such as all the different types of banks and non-banking lending institutions).
  • The FSR allows the RBI to assess the macro-financial risks in the economy. (Macro-financial risks refer to the risks that originate from the financial system but affect the wider economy as well as risks to the financial system that originate in the wider economy.)
  • As such, the FSR looks into:
    • sufficiency of capital for operation of Indian banks (both public and private),
    • levels of bad loans (or non-performing assets) and their manageable limits,
    • ability of different sectors of the economy to get credit (or new loans) for economic activity etc.
  • Accordingly, it reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC-SC) on risks to financial stability.
  • The FSR puts together a wealth of data and information that also allows the RBI to assess the state of the domestic economy, especially in a fast-changing global economy.
  • As part of the FSR, the RBI also conducts “stress tests” to figure out what might happen to the health of the banking system if the broader economy worsens.
  • With the FSR, the RBI also tries to assess how factors outside India — say the crude oil prices or the interest rates prevailing in other countries — might affect the domestic economy.
  • Each FSR also contains the results of something called the Systemic Risk Surveys.

Highlights of the latest FSR (December 2021)

Global growth has started to falter

  • Since the July 2021 issue of the FSR, the rejuvenation of the global recovery in the first half of 2021 has started losing momentum, impacted by:
    • resurgence of infections in several parts of the world,
    • supply disruptions and bottlenecks and
    • the persistent inflationary pressures that have manifested themselves in their wake.
  • The slowdown in activity is occurring even in countries with relatively high vaccination rates that seemed to be emerging as global growth drivers.
  • What has complicated matters more is the rise of the Omicron variant. All this has a considerable impact on even the emerging economies (such as India) where vaccination rates are even lower than advanced economies and which are also likely to suffer from central banks in developed countries making money costlier (by raising interest rates).
  • The Goods Trade Barometer of the World Trade Organization (WTO) shows that the World merchandise trade volumes, which had risen to over 22% year-on-year in Q2 (April to June) of the 2021 calendar year, have been slowing in the second half of the year.

Disconnect between real economy and India’s equity markets

  • Lifted by the bull run in equity markets across the globe, the Indian equity market surged on strong rallies with intermittent corrections and strong investor interest has driven up price-earnings (P/E) ratios substantially.
  • As of December 13, the one-year forward P/E ratio for India was 35.1 per cent above its 10-year average, and one of the highest in the world.
  • This reflects some disconnect between the real economy and equity markets.
  • But this is not the first time that RBI frowned at the growing disconnect between the overall state of the economy and the pace at which India’s stock markets have grown. High levels of divergence are a concern from the point of view of financial stability.

Bank credit growth is improving, but not fast enough

  • According to the FSR, the banking stability indicator (BSI), which indicates the changes in underlying conditions and risk factors of India’s commercial banks, showed improvement in “soundness, asset quality, liquidity and profitability” parameters when compared to the situation in March 2021.
  • Only in the “efficiency” parameter did this indicator worsen. This is good news since this period includes the disruption due to the vicious second wave of Covid-19.
  • Of particular importance is the improvement in the credit growth rate which is beginning to look up and form a “U-shaped” recovery.
  • However, within this overall improvement, there are some matters of concern still.
    • For once, the growth rate is still far off the ideal level.
    • Secondly, retail credit (that is, less than Rs 5 crore) is growing at a decent clip, wholesale credit (Rs 5 crore and above) growth continues to struggle.
    • Moreover, data shows that most of the wholesale credit is being picked up by public sector undertakings while the private sector is holding back from raising fresh funding.
    • There is also the disturbing fact that bank credit to the MSME segment slowed down (y-o-y) by the end of September 2021 vis-a-vis March 2021.

NPAs may rise by September 2022

  • Stress tests indicate that the Gross NPA ratio of all SCBs may increase to 8.1 per cent by September 2022 under the baseline scenario and further to 9.5 per cent under severe stress.
  • Among all the banks typically it is public sector banks that are more guilty of such slippages.
  • For India, the main sources of risks are commodity prices, domestic inflation, equity price volatility, asset quality deterioration, credit growth and cyber disruptions.

-Source: Indian Express

NGOs and corporates Aiding in governance


It is well known that the collaborative effort of markets and the Government leads to development of a country. We also know that engaging with communities and non-state informal institutions is as important as working with the Government machinery.


GS-II: Social Justice and Governance (Management of Social Sector/Services, Transparency and Accountability in Governance)

Dimensions of the Article:

  1. Role of NGOs in Indian Democracy
  2. Benefits of having non-state actors engaging with communities
  3. About Corporate Social Responsibility (CSR)
  4. How is the CSR law helping?
  5. Conclusion

Role of NGOs in Indian Democracy

  • NGOs endeavour to plug gaps in the government’s programmes and reach out to sections of people often left untouched by state projects. For example, providing aid to migrant workers in Covid-19 crisis.
  • They are engaged in diverse activities, relating to human and labour rights, gender issues, healthcare, environment, education, legal aid, and even research.
  • Community-level outfits and self-help groups are critical for bringing any change in the ground – and in the past, such grass roots organisations have been enabled by collaborations with bigger NGOs and research agencies that have access to foreign funding.
  • There are also many political NGOs that mobilise public opinion against government’s policies and actions.
  • A key pillar of democratic governance is citizens’ power to question the state. NGOs and voluntary groups/organisations have played a significant role in building capacities of citizens to hold governments accountable.
  • They also mobilize and organize the poor to demand quality service and impose a community system to accountability on the performance of grassroots government functionaries.
  • Many civil society initiatives have contributed to some of the path-breaking laws in the country, including the Environmental Protection Act-1986, Right to Education Act-2009, Forests Rights Act-2006 and Right to Information Act-2005.
  • The social inter-mediation is an intervention of different levels of society by various agents to change social and behavioural attitudes within the prevailing social environment for achieving desired results of change in society.
  • It is common knowledge that the District Collector calls on vetted NGOs/CSOs to implement various schemes during the normal course of the day or to step in at short notice when calamities strike. NGOs and CSOs sometimes do the heavy lift and ensure that schemes reach the last person even in the face of disaster. When non-state actors take a large load off the state’s shoulder, the state can focus more on governance.

Benefits of having non-state actors engaging with communities

  • Non-state actors, because of their depth of engagement with communities, bring patient capital to corporate board rooms and help the state, too, by engaging in welfare activities.
  • Corporate houses, when implementing their CSR activities, and governments, when executing their flagship projects, especially in the years preceding elections, are aggressive in their targets. But that doesn’t necessarily work in the development sector where change happens at a glacial pace. It is the non-state actors, who know the lay of the land, who bridge the gap between people and firms/state.

About Corporate Social Responsibility (CSR)

  • The term “Corporate Social Responsibility” in general can be referred to as a corporate initiative to assess and take responsibility for the company’s effects on the environment and impact on social welfare.
  • Section 135 of the Companies Act mandates corporates who are beyond a certain level of profits and turnover to pay at least 2% of their net profits before tax to the development space.
  • India is the first country in the world to mandate CSR spending along with a framework to identify potential CSR activities.
  • The indicative activities, which can be undertaken by a company under CSR, have been specified under Schedule VII of the Act. The activities include:
    • Eradicating extreme hunger and poverty,
    • Promotion of education, gender equality and empowering women,
    • Combating Human Immunodeficiency Virus, Acquired Immune Deficiency Syndrome and other diseases,
    • Ensuring environmental sustainability;
    • Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women etc.

How is the CSR law helping?

  • Corporate Social Responsibility (CSR) grants, which wouldn’t necessarily have flowed had it not been for the CSR law, have assumed importance to provide the much-needed sustenance to NGOs and CSOs as key players in non-state governance.
  • This law gives corporates the necessary impetus to collaborate with non-state actors like Non-Governmental Organisations (NGOs) and Civil Society Organisations (CSOs).
  • This strengthening of citizenry-private partnerships is a major component of development activities and this is a classic case of state-driven governance mechanism promoting collaboration among non-state actors.


  • The tension between the tenets of liberty and equality is balanced by fraternity provided by the empathetic NGOs and CSOs in the journey towards a development state.
  • The CSR law has made the corporate world not only clean its own mess but has also created a legal framework for corporates to work with NGOs and CSOs.
  • NGOs and CSOs in India, irrespective of the open hostility of the current dispensation, will play a major role in mobilising citizen action to right various wrongs. They can help contribute to better polity as well as better governance.
  • Most importantly, they have the legitimacy to operate not just as actors who must ride into the sunset after their job is done but to be as integral cogs in the wheel of good governance.

-Source: The Hindu

December 2023