A report by an International Monetary Fund found that 63% of the power sector loans were from the three largest infrastructure finance companies. Representative image | Photo Credit: Getty Images
The IMF stated in a report that stress in non -banking finance companies (NBFCs) may pose a risk in the financial system due to power and interaction with the infrastructure sector and other markets in the financial system.
The International Monetary Fund report, titled “India Financial System Stability Assessment”, found that 63% of the power sector loans were from three largest infrastructure financial fanning companies, which is a type of NBFC in FY 2024. It increased by 55% in 2019-20. In addition, 56% of their loans were financed by market equipment and were rested only by bank lending in the second quarter of FY 2024. Since financial 2019, dependence on bank borrowings increased for funding of their loans. The state -owned NBFCs such as IREDA are at a high risk, found in the international institution.
In addition, NBFC spillover of stress, IMF also studied for banks IF Stagflation, a condition when the increase slows down and inflation increases. In stress testing, the IMF found that in a state of stability, public sector banks (PSBs) may have difficulty maintaining a capital adequacy ratio (CAR) of barely 9%. Car is the ratio of capital for risk, which is used to measure the bank’s ability to absorb loss. The RBI makes 12% and 9% cars compulsory for PSB and scheduled commercial banks, respectively. The IMF stated that although the possibility of stagflation started again in 2024, “the result of the geopolitical risk and monetary policy examples of the major central banks could increase interest rates,” which could slow down economic growth.
“PSB can barely maintain 9% of cars in the scenarios of PSB recession, considering zero increase in your debt portfolio. This means that PSB should strengthen its capital base, including the government to maintain its earnings rather than paying dividends because they are doing over the years to ensure that they can support economic reforms in a potential future recession. PSBs are relatively more unsafe because they have low initial cars and are more sensitive to credit risk, ”found in the report.
The International Institute also made recommendations to reduce risks. The report found that the state -owned NBFCs should have the same regulator burden as private sector NBFCs. In addition, it also underlined the importance of extended data sharing in relation to NBFC Credit and Exposure. Apart from these, the IMF recommended measures such as giving priority to financial stability on the objectives of development of banks among others.
Published – March 04, 2025 11:23 pm IST
