The Reserve Bank of India (RBI) on Thursday released its annual report stating that the capital and asset quality of banks and NBFCs have remained healthy, supporting the growth in bank credit and domestic activity in FY24.
It said that the pre-emptive regulatory measures aimed at curbing excessive consumer lending and bank lending to NBFCs, and investments in alternate investment funds (AIFs) are expected to contain the build-up of potential stress in balance sheets of financial intermediaries and contribute to financial stability.
The RBI in its report flagged concerns related to trading and banking book risks considering the dynamic nature of the interest rate risk.
“While domestic banks and NBFCs have exhibited resilience amid global uncertainties, recent events underscore the importance of vigilant risk management. Considering the dynamic nature of the interest rate risk, banks may have to address both trading and banking book risks, especially in the light of moderating NIM,” said the report.
The report further stated, “On the liabilities side, it is imperative to focus on diversification of deposit sources as reliance on bulk deposits heightens sensitivity to interest rate fluctuations. Additionally, climate-related financial risks and the consequent micro and macro-prudential concerns necessitate a robust framework to identify, assess and manage such risks.”
“Accordingly, the Reserve Bank is striving to make its regulations more principle-based, activity-oriented and proportionate to the scale of systemic risk, rather than entity-oriented,” it further added.
