The Systemic Risk Survey (SRS), the sixth in the series was conducted in April 2014¹ to capture the perceptions of experts, including market participants, on the major risks facing the financial system. The results indicate that global risks and domestic macroeconomic risks are perceived to be major risks affecting the financial system. While the intensity of global risks, which remained unchanged for the last two rounds of the survey, receded during the current round of the survey, macroeconomic risks remained at an elevated level in this round as they did in the two preceding surveys. Survey further revealed that while market risks receded, general risks increased (Figure 1).

Within global risks, though the risk of a global slowdown increased marginally, sovereign risks moved to ‘low risk’ from ‘medium risk’ category. While the global inflation risk remained at the same level, global funding risks receded along with other global risks.

Within the macroeconomic risk category, risks from deterioration in the domestic economic outlook and those on the fiscal side remained in the ‘medium risk’ category though their intensity reduced in the current survey. Interestingly, the risk on account of CAD, in the medium category, is perceived to be at an elevated level despite significant improvements actually witnessed on the external front. Perceptions about elevated political risks can be ignored since the survey was conducted just before the general elections. Other important highlights on the macroeconomic front are risks arising from a slowdown in FDI, a downgrade in sovereign rating, slow pace of infrastructure development and low growth in household savings.

Asset quality deterioration, additional capital requirements of banks and funding/liquidity/interest risks remained elevated in the current round of the survey. Risk perceptions emanating from general risks have moved upward since the last round of survey mainly on account of perceived uncertainties about weather conditions (Figure 2).

Perceptions about confidence in the global financial system as well as in the Indian financial system improved during the past six months (Chart 1).

On the issue of likely changes in demand for credit in the next three months, the stakeholders felt that this may increase marginally or may remain the same. A majority of the respondents had the impression that the average quality of credit may remain unchanged or is likely to deteriorate further, though marginally, while some others felt that it may also improve marginally in the next three months (Chart 2).