Mumbai: At a time when the default issues at Infrastructure Leasing and Financial Services group has thrown a spotlight on health of the non-banking finance sector, the Reserve Bank of India’s stress tests show that some of these lenders may struggle to meet capital norms if bad loans rise.
At a time when the default issues at Infrastructure Leasing and Financial Services group has thrown a spotlight on health of the non-banking finance sector, the Reserve Bank of India’s stress tests show that some of these lenders may struggle to meet capital norms if bad loans rise.
As per the current norms, non-banking finance companies have to maintain a minimum capital level of 15 per cent, including tier-I and tier-II capital. As on Sep 30, capital adequacy ratio was 21 per cent on September 30, from 22.8 per cent in March.In the Financial Stability Report released on Monday, the RBI conducted three credit risk stress tests on the non-banking finance sector for the year ended September.
In the first and second scenario, RBI tested how non-banking finance companies will perform on capital if gross bad loan ratios rise by 0.5 per cent and 1 per cent, respectively, while the third stress scenario studies an increase in bad loan ratio by 3 per cent.
In the first scenario, the capital adequacy for the sector falls to 20.6 per cent, while in the second and third scenario, the capital ratio falls to 18.8 per cent and 14.7 per cent, respectively. “The stress test results for individual NBFCs indicate that under first two scenarios, around 8 per cent of the companies will not be able to comply with the minimum regulatory capital requirements of 15 per cent. Around 12 per cent of the companies will not be able to comply with the minimum regulatory CRAR norm under the third scenario.”
On September 30, out of 10,190 non-bank finance companies registered with the RBI, 108 were deposit taking and 276 were tagged as systemically important non-deposit taking. At the end of September, the balance sheet size of the NBFC sector had increased 17.2 per cent on year to Rs 26 lakh crore.
Mumbai: At a time when the default issues at Infrastructure Leasing and Financial Services group has thrown a spotlight on health of the non-banking finance sector, the Reserve Bank of India’s stress tests show that some of these lenders may struggle to meet capital norms if bad loans rise.
As per the current norms, non-banking finance companies have to maintain a minimum capital level of 15 per cent, including tier-I and tier-II capital. As on Sep 30, capital adequacy ratio was 21 per cent on September 30, from 22.8 per cent in March.
In the Financial Stability Report released on Monday, the RBI conducted three credit risk stress tests on the non-banking finance sector for the year ended September. In the first and second scenario, RBI tested how non-banking finance companies will perform on capital if gross bad loan ratios rise by 0.5 per cent and 1 per cent, respectively, while the third stress scenario studies an increase in bad loan ratio by 3 per cent.
In the first scenario, the capital adequacy for the sector falls to 20.6 per cent, while in the second and third scenario, the capital ratio falls to 18.8 per cent and 14.7 per cent, respectively. The stress test results for individual NBFCs indicate that under first two scenarios, around 8 per cent of the companies will not be able to comply with the minimum regulatory capital requirements of 15 per cent.
Around 12 per cent of the companies will not be able to comply with the minimum regulatory CRAR norm under the third scenario. On September 30, out of 10,190 non-bank finance companies registered with the RBI, 108 were deposit taking and 276 were tagged as systemically important non-deposit taking. At the end of September, the balance sheet size of the NBFC sector had increased 17.2 per cent on year to Rs 26 lakh crore.
