RBI Foresees Higher Risk In NBFC Sector Than in March 2023

The Reserve Bank of India”s (RBI) Financial Stability Report released on Monday stated that all banks would be able to comply with minimum capital requirements, even under a severe stress scenario, while stress in the NBFC sector could be higher relative to March 2023.

“Stress in the NBFC sector has been assessed to be higher under a high-risk stress scenario relative to the March 2023 position. Contagion risks may warrant monitoring on account of increased inter-bank exposure,” the RBI said in its report. However, the resilience of the NBFC sector improved with a CRAR of 27.6 percent, a gross non-performing asset (GNPA) ratio of 4.6 percent, and a return on assets of 2.9 percent in September, the RBI said. Going ahead, the RBI said it would be “prudent to proceed with caution on the evolving outlook and risks.”

According to the report, the aggregate CRAR of 46 major banks may slip from 16.6 percent in September to 14.8 percent by September 2024, with no scheduled commercial bank (SCB) breaching the minimum capital requirement of 9 percent in the next year as it is well-capitalized to absorb macroeconomic shocks. The CRAR and CET-1 ratios of SCBs stood at 16.8 percent and 13.7 percent, respectively, in September 2023.

The asset quality of banks has improved significantly, with the net NPA and gross NPA of banks declining to a multi-year low of 0.8 percent and 3.2 percent, respectively, at the end of September.

The report expressed optimism about the future of Indian financial system, with retail inflation moderating and raising the prospects of a soft landing.