India’s banking and non-banking financial companies (NBFCs) have demonstrated enhanced financial resilience, supported by strong capital, stable asset quality, and profitability, according to a report by Brickwork Ratings. Scheduled commercial banks have reported capital adequacy ratios well above regulatory requirements, with system-wide levels at around 17 percent. Capital Adequacy Ratio (CAR) measures a bank’s ability to absorb losses from bad loans and support its business growth.
The Reserve Bank of India mandates a minimum total CAR of 9 percent for banks and 11.5 percent including the Capital Conservation Buffer. Public sector banks have notably bolstered their capital positions, driven by improved earnings and asset quality enhancements, alongside government infusions. Private sector banks continue to benefit from efficient capital management and diversified portfolios.
Brickwork Ratings’ Director mentioned that the Indian banking system is well capitalized, providing room for growth and resilience against potential stress. The sector’s strength is attributed to improved profitability, enhanced asset quality, and disciplined risk management. Maintaining high-quality capital and strong internal capital generation are deemed crucial for sustaining confidence and supporting long-term growth.
In the NBFC sector, the capitalization landscape varies, with large NBFCs maintaining healthy buffers supported by equity market access, diversified funding profiles, and robust governance. Conversely, mid-sized and smaller NBFCs face more significant pressure due to rising funding costs, reliance on wholesale borrowings, and stricter investor scrutiny. The ratings agency projects Indian banks to uphold CAR above minimum requirements even in adverse macroeconomic scenarios.
Analysts noted that the Reserve Bank of India’s interventions impacted banks’ December quarter earnings, particularly due to priority sector lending and agriculture book adjustments. However, these effects are viewed as short-term factors. Non-banking financial companies are expected to shine during the earnings season, emerging as standout performers.
