The overall improvement in the financial system stress indicator (FSSI) came on the back of an easing in government debt market stress, according to the Economic Survey for fiscal 2023-24.
This was aided by a fall in long-term yields as well as volatility and higher net foreign portfolio debt inflows.
The FSSI monitors the aggregate stress level in the Indian financial system. It aims to (a) help identify periods of stress, (b) assess the intensity and duration of stress in the financial system, and (c) gauge the ability of the financial markets and intermediaries to withstand shock and imbalances.
Declining volatility and rangebound movement in the exchange rate reduced the stress levels in the foreign exchange market.
Money market stress indicators inched up as tight liquidity in the banking system led to higher interest rates on money market instruments (such as commercial papers and certificate of deposits), the survey said.
The banking system stress indicator remained subdued, supported by improving soundness. The real sector stress indicator moderated further on the back of sound macroeconomic fundamentals.
Stress indicators for the NBFC sector rose as their capital ratios dipped and spreads on their borrowing costs increased.
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