IMF on NBFCs
The IMF has warned that stress in non-banking finance companies (NBFCs) could pose a risk to the broader financial system.
NBFCs are heavily exposed to the power and infrastructure sectors, which increases their vulnerability.
In fiscal 2024, 63% of loans in the power sector were provided by three large infrastructure financing NBFCs, up from 55% in 2019-20.
These NBFCs have become increasingly reliant on market instruments for financing, with only a small portion financed through bank borrowings.
State-owned NBFCs like IREDA are particularly at risk due to their higher exposure and reliance on market instruments.
IMF on PSBs
The IMF also conducted stress tests on public sector banks (PSBs) to assess their resilience in the event of stagflation, where economic growth slows while inflation rises.
The tests found that PSBs could struggle to maintain a capital adequacy ratio (CAR) of 9% in a stagflation scenario.
The IMF recommended that PSBs should strengthen their capital base by retaining earnings rather than paying dividends to the government, ensuring they are prepared for potential future economic downturns.
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