India needs to remain prepared to deal with external risks: FSDC

New Delhi: India should remain in a state of "full preparedness" to deal with any external sector vulnerability, Finance Ministry said after a meeting of the FSDC.

The Financial Stability and Development Council (FSDC), which is headed by Finance Minister Arun Jaitley also discussed the rising bad loans of the banking sector and decided to set up a Resolution Corporation to deal with issues concerning closure of financial companies.

The FSDC, whose members include RBI Governor Raghuram Rajan and other financial sectors regulators, said high volatility in the financial markets is one of the most prominent risks confronting the Emerging Market Economies.

"However, India appears to be much better placed today on the back of improvement in its macro-economic fundamentals and large forex reserves, which provides cushion against financial market volatility.

"Members agreed on the need to continue to be in a state of full preparedness for managing any external sector vulnerabilities," a statement said.

The FSDC also deliberated on the issue of rising bank NPAs and corporate sector balance sheet stress wherein it noted the measures taken by Government and RBI for handling the stressed assets.

"It also discussed the impact of Bank NPAs and corporate sector balance sheet stress on bond market," the finance ministry statement added.

Non performing assets at the end of March rose to Rs 2.67 lakh crore, from Rs 2.40 lakh crore at the end of March 2014.

The FSDC was also apprised of the action or proposed action taken on the recommendations of the task forces set up by Economic Affairs Department on PDMA (Public Debt Management Agency), FSAT (Financial Sector Appellate Tribunal), FDMC (Financial Data Management Centre) and Resolution Corporation.

On PDMA, the process of inter-ministerial consultations is underway, while on FSAT, it is proposed to strengthen the tribunal by providing for more benches, the statement said.

On FDMC, to begin with, it is proposed to set up a body which would assist FSDC in decision making. As for Resolution Corporation, it is proposed to set up the body in consultation with all stakeholders, it added.

"The Council was updated about the merger of FMC with SEBI and the current status of harmonisation and convergence of regulations relating to securities market and commodity derivatives market," it said.

The Government had constituted in December 2014 an Inter-ministerial Group (IMG) under Additional Secretary (Investment), DEA, for identifying gaps in the existing regulatory framework for deposit taking activities and to suggest, measures to address issues relating to deposit taking. The IMG has recently submitted its report to the Government.

"FSDC was apprised of the salient features of the report. Department of Financial Services is considering the recommendations of the Committee," it said.

The FSDC was apprised of the latest developments at the Financial Stability Board (FSB) and Financial Action Task Force (FATF), and about India's participation in these international bodies.