The RBI Tells in its annual report that some NBFCs pose a “potential threat” to stability
The report also suggested that, despite headwinds and challenges posed by the fiscal year 2022.
Structural reforms to improve medium-term growth potential hold the key to sustained, balanced, and inclusive growth.
THE RESERVE BANK OF INDIA (RBI) warned in its annual report released on Friday. That non-banking finance companies’ (NBFCs’) higher risk appetite poses a “potential threat” to the country’s financial stability.
The report also suggested that, despite headwinds and challenges posed by the fiscal year 2022. Structural reforms to improve medium-term growth potential hold the key to sustained, balanced, also inclusive growth.
The RBI report said of new, “their higher risk appetite has contributed over time to their size. Complexity, and interconnectedness, making some of the entities systemically significant that pose potential threat to financial stability.”
Nearly a dozen NBFCs have expanded their balance sheets exponentially. Primarily in the retail sector, prompting the RBI to reduce. Such companies’ regulatory arbitrage with banks bringing them almost on par with banks in terms of regulatory oversight.
Following the collapse of financial entities such as IL&FS group, DHFL. And Srei Infrastructure Finance in recent years, the central bank has been closely monitoring the top 50 NBFCs. It has strengthened on-site supervision and compliance because it believes an NBFC failure will endanger the banking system. According to RBI data, banks’ total exposure to NBFCs was Rs 10.54 lakh crore as of March 25.
Concerning structural reforms, the RBI stated that they would assist workers in adapting to the pandemic. After effects by reskilling them also allowing them to adopt new technologies to increase productivity.
“The conflict in Ukraine, and the resulting spike in commodity prices, has clouded the outlook for inflation in India and the rest of the world,” it said.
The RBI’s policy committee raised the repo rate by 40 basis points to 4.40 percent earlier this month to combat inflation. “The immediate impact of geopolitical aftershocks is on inflation. With nearly three-fourths of the consumer price index at risk,” according to the RBI. According to the report, the rise in international crude, metal, also fertilizer prices has resulted in a trade shock that has widened trade and current account deficits.
