Foreword

List of Select Abbreviations

Overview

Chapter I: Macroeconomic Outlook

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 Index

Network Analysis

Banking Stability Measures

Macrofinancial Stress Testing

Annex: Methodologies

LIST OF BOXES

2.1 Trading Behaviour of FIIs and Mutual Funds in Indian Equity

3.1 Euro Zone Crisis and Impact on Indian Banks

3.2 Impairments and Restructuring Rises in Power and Telecom Sector

3.3 Deregulation of Savings Bank Interest Rates : An Analysis

4.1 Dynamic Provisioning

4.2 The Set of Proposed Policy Reforms for G-SIBs

4.3 Shadow Banking

5.1 Network Analysis Concepts

LIST OF CHARTS

1 Financial Stability Map

2 Financial Stability Indicator

1.1 Macroeconomic Stability Map

1.2 Macroeconomic Stability Indicator

1.3 PMIs in the U.S. and Europe

1.4 Trade Balance of China and the U.S.

1.5 Sovereign Debt and Borrowings Remains High

1.6 External Sector Vulnerability Indicator

1.7 External Sector Stress

1.8 Slowdown in Sectors

1.9 PMIs indicate Stagnation/Contraction

1.10 Deceleration in Components of Domestic Demand

1.11 Inflation in India and Abroad

1.12 Food and Energy Inflation in India and Abroad

1.13 Uptrend in Index of Fiscal Stress

1.14 Interest Costs Rise and Profits Decline

1.15 Industrial Sector Outlook

1.16 Growth in Retail Credit and Retail NPA Ratio

1.17 All India Housing Price Index

1.18 Growth in Housing Credit and Housing NPA ratio

2.1 Financial Markets Stability Map

2.2 Financial Markets Stability Indicator

2.3 Sovereign CDS Prices in 5-year Maturity (in basis points)

2.4 Sovereign CDS Prices in 5-year Maturity (in basis points)

2.5 Equity Market based Indices of Volatility in US, Europe and India

2.6 Sovereign Ratings of Europe by Various Agencies

2.7 European Broad and Bank Stock Indices

2.8 Libor-OIS Spreads on Euro and US Dollar

2.9 Deposit Balances with ECB

2.10 FII Net Purchase and Indian Rupee in 2011

2.11 Current and Capital Account Net Flows

2.12 Yields on Government Securities in Various Maturities

2.13 Maturities of ECBs and FCCBs

2.14 International Investment Position of India

2.15 Foreign Exchange Coverage Ratios

2.16 Currencies with External Deficit and Broader Currency Indices

2.17 Difference Between Onshore and Offshore Forward Rate of US$/INR in 3- and 6-month Maturity

2.18 Range of Analyst Forecasts for US$/INR in end-July

2.19 Historical Volatility of Various Markets

2.20 Cash Versus Derivatives Turnover in Equities and their Ratio

2.21 Composition of Trading in Cash Equities

2.22 Composition of Trading in Equity Derivatives

2.23 Nifty Returns Versus FII Net Sales

2.24 Nifty Returns Versus Net Institutional Activity

2.25 Volume and Number of Trades in OIS

2.26 Outstanding Notional Sum and Number of Trades in OIS

3.1 Consolidated Foreign Claims of European Banks As a Ratio of Nominal GDP of the Respective Country

3.2 Share of Overseas Branches (Including Subsidiaries) of Indian Banks-September 2011

3.3 Growth Rate of Select Balance Sheet Items of SCBs

3.4 Share of Bank Groups in On and Off Balance Sheet Assets-September 2011

3.5 Banking Stability Map

3.6 Banking Stability Indicator

3.7 CRAR of Bank Groups

3.8 CRAR of Banks in Different Countries

3.9 Trend in Growth Rate of Slippages and Gross NPAs vis-a-vis Gross Loans & Advances

3.10 Growth Rate of Gross NPAs Split into Half Years

3.11 Gross NPA Ratios -Cross Country

3.12 Gross NPA Ratios Vs PCR-Cross Country

3.13 Sectoral Share in Aggregate Banking System Credit and NPA-September 2011

3.14 Growth Rate of NPA and Credit-September 2011

3.15 Contribution of Power and Telecom

3.16 Distribution of Exposure Across Bank Groups

3.17 Impaired and Restructured Accounts as a Share of Outstanding Bank Credit to Power and Telecom Sectors

3.18 Break-up of Bank Credit to Power Sector

3.19 Growth Rate of Credit to Power Sector and Its Components

3.20 Growth Rate of Components of Earnings

3.21 Top 10 Borrowers as per cent of Total Assets-June 2011

3.22 Share in CASA Vs Cost of Deposits-September 2011

3.23 Impact on NIM for 100bps Rise in Savings Bank Deposit Rate

3.24 Lorenz Curve Representing Distribution of Credit and Deposits Across All the States and Union Territories of India-June 2011

3.25 Bank Credit to Industries - Risk Wise

3.26 Ratio of Illiquidity-June 2011

3.27 Decline in Nil Due to a Shock of 200 bps

3.28 Decline in Capital Funds Due to a Shock of 200 bps

3.29 Financial Parameters of SUCBs

3.30 Financial Parameters of Rural Co-operative Banks-March 2010

3.31 Financial Soundness Indicators of NBFC-ND-SIs

3.32 Share in Sources of Funds - NBFC-ND-SIs

3.33 Credit Risk: Gross Credit - Impact on Capital and NPAs of Commercial Banks under Various Stress Scenarios: September 2011

3.34 Credit Concentration Risk - Impact on Capital and NPAs of Commercial Banks under Various Stress Scenarios: September 2011

3.35 Liquidity Position of Banks under Stressed Scenarios - Banks Facing Deficits -Liquid Assets Definition-2 : September 2011

3.36 Stress Testing SUCBs: Impact of Shocks on Capital Position - June 2011

4.1 Effect on Lending Spreads Due to a Percentage Point Increase in Capital Requirements

4.2 The Framework for Advanced Approaches under Basel II

4.3 Remit of the FSDC

4.4 Technical Groups of the FSDC Sub Committee

4.5 Countercyclical Prudential Regulation - Commercial Real Estate

4.6 Countercyclical Prudential Regulation - Retail Housing Loans

4.7 Countercyclical Prudential Regulation - Capital Markets

4.8 Segments of the Indian Financial System

4.9 Trends in Value

4.10 Trends in Volume

4.11 Network of Banks in the RTGS System (two separate dates)

4.12 Pattern of Intraday Payments in the RTGS System (Value and Volume)

4.13 Intraday Payment Patterns of Select Banks (Value)

4.14 Intraday Payment Patterns of Select Banks (Number of Transactions)

4.15 Network Structure of Derivative Exposures Between Banks

4.16 Network Structure of Derivative Exposures Between 20 Core Banks

5.1 Specific Risks Identified by Respondents of Systemic Risk Survey

5.2 Risks Most Difficult for Country to Manage

5.3 Risks Most Difficult for Financial Institutions to Manage

5.4 Probability of a High Impact Event

5.5 Change in the Degree of Confidence in the Stability of Financial Systems

5.6 Systemic Liquidity Index

5.7 Bank Group Wise Activity in the Interbank Market

5.8 Percentage Change in Activity Over the Last One Year

5.9 Inter-Bank Market Share: September 2010

5.10 Inter-Bank Market Share: September 2011

5.11 Network Structure of the Indian Banking System -September 2010

5.12 Network Structure of the Indian Banking System -March 2011

5.13 Network Structure of the Indian Banking System -September 2011

5.14 Share in the Derivatives Market

5.15 Derivatives Network –September 2011

5.16 Network of the Indian Financial System

5.17 Network Structure of the Financial System

5.18 Contagion Due to the Failure of the Largest Net Borrower Bank

5.19 Movement of JPoD and BSI

5.20 Movement of Toxicity Index

5.21 Movement of Vulnerability Index

5.22 Movement of Cascade Effect

5.23 Expected Shortfall: System Level

LIST OF TABLES

2.1 Spearman’s Rank Correlation Analysis

3.1 Profitability Ratios

3.2 Credit Risk: Gross Credit Commercial Banks Falling Below Regulatory Capital Requirements under Stress Conditions: September 2011

3.3 Credit Risk: Sectoral – September 2011

3.4 Credit Concentration Risk - Commercial Banks Falling Below Regulatory Capital Requirements under Stress Conditions: September 2011

3.5 Interest Rate Risk - Banking Book

3.6 Interest Rate Risk - Trading Book (Modified Duration Approach)

3.7 Impact on Liquidity Position of Banks under Stressed Scenarios Liquid Assets Definition-1 : September 2011

4.1 Settlement Members with RBI / DSBs

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

5.2 Confidence in the Stability of the Global and Domestic Financial Systems

5.3 Total Capital Loss (as percentage of banking system capital) due to the Failure of the Top Five Net Borrowers

5.4 Inter Sector Exposures

5.5 Macroeconomic Scenario Assumptions

5.6 Projected Gross NPA Ratios using Different Models

5.7 Projected CRAR using Different Models

5.8 Bank-Group-Wise Projected NPAs (Multivariate Panel Regression)

5.9 Bank-Group-Wise Projected CRAR (Multivariate Panel Regression)

5.10 Projected Sectoral NPA