A stress test conducted by Fitch Ratings revealed that Indian banks would face a capital shortfall of approximately US$50 billion by fiscal 2021 in case a systemic crisis hits the country's non-bank financial company sector.
The rating agency said its stress test assessed the potential impact of liquidity pressures in the NBFC sector developing into widespread failures. The stress test revealed that the credit profiles of Indian state-owned banks will face significant pressure, while the weakest banks are likely to face higher solvency risks without capital support from the government.
Fitch said India's NBFC sector already US$7 billion short of the capital required to meet a 10% weighted average common equity Tier I ratio. The gap would rise to about US$50 billion by fiscal 2021 under the stress scenario. Further, banks will be US$10 billion short of the capital required to meet the regulatory minimum of 8% set to apply from March 31, 2020.