While macro stress tests for credit risks indicate that even under a severe stress scenario all banks would be able to comply with minimum capital requirements, stress in the NBFC sector could be higher relative to March 2023, the Reserve Bank of India said in the Financial Stability Report released on Thursday.
“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 per cent, a gross non-performing asset (GNPA) ratio of 4.6 per cent and a return on assets of 2.9 per cent in September, RBI said. Going ahead, the RBI said it would be “prudent to proceed with caution on the evolving outlook and risks.’
RBI expects the aggregate CRAR of 46 major banks to slip from 16.6 per cent in September to 14.8 per cent by September 2024. RBI doesn’t expect any scheduled commercial bank (SCB) to breach the minimum capital requirement of 9 per cent in the next one year. As such, it said that SCBs are well-capitalised and can absorb macroeconomic shocks. CRAR and CET-1 ratio of SCBs stood at 16.8 per cent and 13.7 per cent respectively in September 2023.
On the asset quality front, the net NPA & gross NPA of banks declined to a multi-year low of 0.8 per cent and 3.2 per cent respectively at the end of September.
Outlook & risks
The RBI said that the Indian financial system’s health has been steadily improving. The RBI noted that retail inflation in India has been moderating with emerging optimism around the prospects of a soft landing of the global economy.
“Global interest rates have peaked in the current monetary policy tightening cycle, though macroeconomic conditions remain too fragile and uncertain for a definite view on growth and inflation conditions going forward. On balance, therefore, it would be prudent to proceed with caution on the evolving outlook and risks,” the report said.
RBI stressed yet again that the global economy faces multiple challenges, including prospects of slowing growth, large public debt, increasing economic fragmentation, and prolonging geopolitical conflicts. RBI said that policymakers remain alert and committed to act “early and decisively” to prevent the build-up of any risks.
“Our recent macroprudential measures to curb lenders’ exuberance towards certain segments of retail loans underline our commitment to preserve financial stability without compromising availability of funds for productive requirements of the economy,” RBI said.
In its outlook, the RBI said that challenges emanating from cyber risk and climate-related risk are two major focus areas for policymakers. In its report released Wednesday, RBI’s data showed that around 14,483 frauds were reported in the first half of FY23, compared to 5,396 cases in the same period a year ago. With the adoption of new technology, it said, the risks of cyberattacks, data breaches and operational failures have also increased.
