RBI Urges Strengthening Balance Sheets Despite Strong Financials

The RBI's "Trend & Progress Report for 2022-23" highlighted the robustness of Indian banks and NBFCs, noting a decade-low in gross non-performing assets (GNPAs) while emphasising the necessity to fortify balance sheets, enhance governance and monitor the surge in unsecured loans. Scheduled commercial banks exhibited a declining trend in GNPA ratios, hitting a 3.2 per cent low by September 2023, propelled by reduced slippages and improved asset quality.

While the system showed high capital ratios and improved asset quality, the report cautioned about contagion risks due to interconnectedness between banks and non-banks. It urged constant evaluation of exposure and emphasised NBFCs diversifying funding sources. However, it noted the growing concern over unsecured loans, especially in the retail segment, despite their current sound asset quality.

The rise in unsecured loans led to regulatory action, with increased risk weights implemented in November to ensure financial stability. Overall, the report stressed the need for continual strengthening of balance sheets through robust governance and risk management to align with India's economic growth.