Growth of shadow banks poses threat to financial stability: RBI report

Balance sheet expanded but asset quality deteriorated, says RBI report

The Reserve Bank of India (RBI) has red-flagged non-banking financial companies (NBFCs) in its annual report, observing that balance sheets of shadow banks expanded even as the asset quality deteriorated. Moreover, the regulator said some of these entities pose potential threat to financial stability as their size increased due to higher risk appetite.

“The balance sheet of NBFCs expanded in 2021-22 (up to December 2021) but asset quality in the sector deteriorated. Nevertheless, capital cushions showed an improvement,” the annual report said.

The report said the contribution of NBFCs towards supporting real economic activity and acting as a supplemental channel