RBI Financial Stability Report on NBFCs

Loan Growth Moderation

• Loan growth of shadow banks moderated to 6.5% on a half year-on-half year basis by September 2024.
• Significant impact seen in upper-layer NBFCs, especially in NBFC-Investment credit companies, with 63.8% retail lending.
• Middle-layer NBFCs, excluding government-owned ones, showed robust growth in retail loan portfolios.

Credit Growth and Funding Sources

• Overall credit growth slowed to 16% from 22.1% year-on-year.
• Bank funding for upper-layer NBFCs dropped to 34.6% and for middle-layer NBFCs to 26.3%.
• NBFCs are turning to the bond market, especially private placements, and increasing foreign currency borrowings.

Cost and Risk Implications

• Growth in bank borrowings in NBFCs' liabilities fell from 26% to 17%, raising their cost of funds.
• RBI cautions that increased foreign currency borrowings could pose currency risks if unhedged.

Sector Health and Vulnerabilities

• NBFC sector remains healthy with strong capital buffers, robust interest margins, and improving asset quality.
• Write-offs are rising, with some NBFCs showing significantly higher write-offs.
• Upper-layer NBFCs are more vulnerable to liquidity issues due to higher short-term liabilities.

Stress Test Findings

• RBI's stress test on 162 NBFCs estimated a future GNPA ratio of 3.4% with a CRAR of 21.2%.
• Eleven NBFCs may fall below the minimum CRAR requirement of 15% under baseline conditions.
• CRAR may reduce by 70-100 basis points under medium to high-risk scenarios due to income losses and additional provisioning.

Liquidity Resilience

• One-year liquidity mismatch is expected to stay within 20%, but some NBFCs may experience higher mismatches under stress.