Capital levels of Banks and NBFCs will remain well above regulatory minimum even under adverse stress scenarios
Stress test results reveal that capital levels of the banking system as well as of the non-banking financial companies (NBFCs) sector will remain well above the regulatory minimum even under adverse stress scenarios, RBI Governor Sanjay Malhotra said in the latest Financial Stability Report.
Macro stress tests reveal that SCBs’ aggregate capital would remain much higher than the minimum regulatory capital requirement of 9 per cemt in March 2026 under adverse scenarios.
Stress test for NBFCs shows that even under a high-risk scenario, their one-year ahead CRARs (capital to risk-weighted assets ratios) would remain much above the regulatory minimum level. of 15 per cent.
The ability of the financial institutions to absorb shocks in adverse scenarios provide comfort on financing of economic growth dynamics, going forward, per the FSR, which is a half-yearly publication, with contributions from all financial sector regulators.
The minimum regulatory capital requirement for SCBs and NBFCs is currently at 9 per cent and 15 per cent, respectively.
The ability of the financial institutions to absorb shocks in adverse scenarios provide comfort on financing of economic growth dynamics, going forward, per the report.
Under the revised framework for macro stress testing, which attempt to project capital ratios of banks under a baseline and two adverse macro scenarios over a one-and-half year horizon — till end-March 2026, the aggregate CRAR (capital to risk-weighted assets ratio) of 46 major SCBs may fall from 16.6 per cent in September 2024 to 16.5 per cent by March 2026 under the baseline scenario.
The CRAR may decline to 15.7 per cent under adverse scenario 2 (assumes that global and idiosyncratic risk factors blend to trigger a synchronized sharp growth slowdown in key economies).
No bank would fall short of the minimum capital requirement of 9 per cent under both the scenarios.
However, under adverse scenario 1 (assumes persisting geopolitical risks and escalation of global financial market volatility), SCBs’ aggregate CRAR may deplete to 14.3 per cent and four banks may breach the minimum capital requirement of 9 per cent.
The aggregate GNPA (gross non-performing assets) ratio of the 46 banks may rise from 2.6 per cent in September 2024 to 3 per cent in March 2026 under the baseline scenario and further to 5 per cent and 5.3 per cent, respectively, under adverse scenario 1 and adverse scenario 2.
Stress test results for NBFCs
System level stress tests for assessing the resilience of the NBFC sector to shocks in credit risk conducted on a sample of 162 NBFCs, whose combined capital adequacy ratios and GNPA ratios stood at 23.6 per cent and 2.9 per cent, respectively, in September 2024, estimated the one year ahead GNPA ratio at 3.4 per cent and the system level CRAR at 21.2 per cent under the baseline scenario.
Under the medium and high-risk scenarios, the one year ahead GNPA ratio for the system is estimated at 4.7 per cent and 6 per cent, respectively, and the system level CRAR at 20.5 per cent and 20.2 per cent, respectively.