Q. Below is an excerpt from FINANCIAL STABILITY REPORT published by RBI in June 2023

The excerpt refers to stress testing the banking balance sheet to macro economic variables. Outline 5 macro indicators that are likely to have the highest adverse impact on a banks balance sheet with reasoning.

II.1.6 Resilience - Macro Stress Tests 2.13 Macro stress tests are performed to assess the resilience of SCBs balance sheets to unforeseen shocks emanating from the macroeconomic environment. These tests attempt to assess capital ratios over a one-year horizon under a baseline and two adverse 11 (medium and severe) scenarios. The baseline scenario is derived from the projected values of macro variables. The medium and severe adverse scenarios are arrived at by applying 0.25 to one standard deviation (SD) shocks and 1.25 to two SD shocks. respectively. to the macroeconomic variables. increasing the shocks sequentially by 25 basis points in each quarter (Chart 2.7)