RBI Report Highlights Strong Bank Health and Financial Stability Measures

On Thursday, the Reserve Bank of India (RBI) released its annual report, noting that banks and Non-Banking Financial Companies (NBFCs) have maintained healthy capital and asset quality. This has supported the growth of bank credit and domestic economic activity in the financial year 2024 (FY24).

The RBI highlighted pre-emptive regulatory measures taken to prevent excessive consumer lending and bank lending to NBFCs, as well as investments in alternate investment funds (AIFs). These measures are expected to prevent potential stress in the balance sheets of financial intermediaries and ensure financial stability.

The report raised concerns about risks in trading and banking books due to the changing nature of interest rate risk. It emphasized the importance of vigilant risk management amid global uncertainties. “Domestic banks and NBFCs have shown resilience, but recent events highlight the need for careful risk management, especially given the changing interest rate risk,” the report stated.

The RBI also stressed the importance of diversifying deposit sources, as relying heavily on bulk deposits makes institutions more sensitive to interest rate changes. The report mentioned that climate-related financial risks require a strong framework to manage both micro and macro-prudential concerns.

The RBI is working to make its regulations more principle-based and activity-oriented, rather than focusing on specific entities. This approach aims to proportionately address the scale of systemic risk.

Overall, the RBI’s report underscores the need for ongoing vigilance and strategic risk management to maintain financial stability and support economic growth.