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RBI Annual Report Flags Climate Related Financial Risks

Updated: May 30, 2024 03:46:14pm

RBI Annual Report Flags Climate Related Financial Risks

New Delhi, May 30 (KNN) The Reserve Bank of India's annual report, released on Thursday, assessed the health of the country's banking system and non-banking financial companies (NBFCs).

The report stated that the capital adequacy and asset quality metrics of banks and NBFCs have remained robust, underpinning credit growth and domestic economic activity during the fiscal year 2023-24.

It further highlighted the necessity of a robust framework to identify, assess, and manage climate-related financial risks and their consequent micro and macro-prudential implications.

The central bank cited pre-emptive regulatory measures aimed at curbing excessive lending to consumers and NBFCs' exposure to alternative investment funds as factors expected to mitigate potential stress build-up on financial institutions' balance sheets, thereby contributing to financial stability.

However, the RBI flagged concerns over trading and banking book risks stemming from the dynamic nature of interest rate fluctuations.

"While domestic banks and NBFCs have exhibited resilience amid global uncertainties, recent events underscore the importance of vigilant risk management," the report stated, emphasising the need for banks to address both trading and banking book risks, particularly in light of moderating net interest margins.

On the liabilities front, the report underscored the imperative of diversifying deposit sources, as an overreliance on bulk deposits heightens sensitivity to interest rate movements.

Accordingly, the RBI stated its commitment to making regulations more principle-based, activity-oriented, and proportionate to systemic risk levels, rather than solely entity-oriented.

(KNN Bureau)


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