The financial stability report released on Thursday highlighted concerns linked to falling household savings, speculative activity in small caps and derivatives markets, and the increase in bank borrowing and lending by NBFCs.
Noting that household savings dropped to 18.4% of GDP in FY23, from an average of 20% over 2013-22, RBI said that it is important to monitor household debt due to the increasing trend in financial liabilities, to ensure financial stability.
The report noted the rapid growth in futures & options volumes, which poses risks to retail investors without proper risk management, potentially impacting the cash market. Short-duration options in volatile indices could amplify leverage, driven by changing investor preferences for immediate expiries.
It also expressed concern over froth in small-cap stocks. The report said there has been a rapid increase in mid-and small-cap stocks, accompanied by higher inflows to mutual fund schemes targeting these segments. Das said all stakeholders should not only invest adequately to take full advantage of technological advancements, but also take steps to safeguard the security and soundness of their systems.
“Efforts must be made to develop an ecosystem that puts the interests of the customer at the forefront. Ultimately, preserving the trust of the customer is the cornerstone of safeguarding systemic stability,” Das said.
He said the results of stress tests demonstrate that capital levels of banks and NBFCs will remain above the regulatory minimum even under severe stress scenarios.
The stress tests reveal that in FY25, the banking sector will have adequate capital (common equity tier-1 of 10.8%) even under a severe stress scenario where gross non-performing assets rise to 3.4%. “Today, the matrix of financial stability is perhaps at its best, but the real challenge is to maintain it and improve it further. The regulators, on their part, remain committed to these goals,” Das said.
The baseline projections in the report show that if economic indicators follow expectations, the banking system will be at its healthiest. Gross NPAs are projected to improve further from a 12-year low of 2.8% as of March 2024 to 2.5% by March 2025. Banks had a capital adequacy ratio of 16.8% as of March 2024, which would decline to 14.4% and 13% under medium and severe stress scenarios.
In the non-bank sector, the report said that there has been high delinquency among borrowers with personal loans below Rs 50,000.
