Indian banks strong enough to face adverse macro and credit stress: RBI

The Reserve Bank of India (RBI) has stated that Indian banks are robust enough to endure adverse macroeconomic and credit stress without compromising their mandated capital positions. However, the widespread adoption of technology and innovation threatens financial stability, warranting regulatory attention.

While the perception of riskiness in the Indian banking system has improved globally, the RBI notes an increased contagion risk due to recent mergers in the sector, alluding to the HDFC and HDFC Bank merger without explicitly naming them.

Despite record profits for Indian banks, driven by increased income from lending and reduced provisions for bad loans, the RBI remains vigilant. It has historically ensured banks raise sufficient capital, even placing some public sector banks under the Prompt Corrective Action scheme until they regain financial soundness. Prudential measures are being reintroduced to maintain resilience and prevent any regression.

The report suggests that the capital adequacy ratio may decrease to 13.5% in a medium-stress scenario and 12.2% under severe stress by September 2024, remaining above the minimum capital requirements. It assures that no scheduled commercial bank would breach the minimum capital requirement of 9% in the next year.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.