The Reserve Bank of India (RBI) released its annual report on Thursday, highlighting that banks and NBFCs have maintained robust capital and asset quality, fostering growth in bank credit and domestic activity for FY24.
The report stated that pre-emptive regulatory measures targeting excessive consumer lending, bank lending to NBFCs, and investments in alternate investment funds (AIFs) are expected to mitigate potential stress in financial intermediaries’ balance sheets and enhance financial stability.
The RBI also highlighted concerns about trading and banking book risks due to the dynamic nature of interest rate risk.
“Despite global uncertainties, domestic banks and NBFCs have shown resilience. However, recent events highlight the need for vigilant risk management. Given the dynamic nature of interest rate risk, banks must address both trading and banking book risks, particularly with moderating NIM,” the report stated.
The report emphasized the importance of diversifying deposit sources to reduce sensitivity to interest rate fluctuations, as reliance on bulk deposits can be risky. It also highlighted the need for a robust framework to identify, assess, and manage climate-related financial risks and associated prudential concerns.
The Reserve Bank is working to make its regulations more principle-based, activity-oriented, and proportionate to the scale of systemic risk, rather than focusing solely on entities, the report added.