Under the baseline scenario, the system-level gross non-performing asset (GNPA) ratio of non-banking financial companies (NBFCs) is expected to rise from 2.3% in September to 2.9% by September 2026, according to stress tests conducted by the Reserve Bank of India. As asset quality weakens, the sector’s aggregate capital adequacy ratio (CRAR) is projected to decline from 22.8% to 21.7% over the same period.
Capital Buffer Resilience vs. Individual Vulnerabilities
Despite the moderation, capital levels at the system level would remain well above the regulatory minimum requirement of 15%, the Central Bank bank said in its Financial Stability Report released on Wednesday. However, the RBI flagged uneven resilience within the sector, noting that under the baseline scenario itself, eight NBFCs may see their capital ratios fall below the minimum threshold.
Severe Stress Scenarios and Liquidity Risks
The central bank also assessed the impact of more adverse conditions. Under a medium stress scenario, which assumes a sharper rise in bad loans, income losses and higher provisioning could reduce the aggregate CRAR by an additional 58 basis points. In a severe stress scenario, the impact would be stronger, with the aggregate capital ratio declining by a further 75 basis points.
Under both the medium and severe stress scenarios, as many as 11 NBFCs may fail to meet the minimum capital requirement, highlighting the vulnerability of weaker entities to a sharp deterioration in asset quality. “Stress tests results showed, barring a few outlier NBFCs, aggregate capital position would remain well above regulatory requirements under adverse shocks,” the report said.
A few NBFCs to face liquidity gap
Liquidity stress tests also pointed to limited but rising pressure. The RBI said three NBFCs could face a significant liquidity gap under the baseline scenario, with the number rising to four under the medium stress scenario and seven under the severe stress scenario, based on assumed higher cash outflows and lower inflows over the next year.