RBI’s Supervisory Concerns: RBI flags rising asset quality stress and high concentration risks in small finance banks (SFBs).
Merger Recommendations: SFBs advised to explore mergers to gain scale and reduce concentration risks.
Microfinance Sector Stress: SFBs with high microfinance exposure face NPAs at 15.3%, above the sector average of 11.6%.
Geographic Risks: Some SFBs have significant exposure to high-stress geographic areas, worsening asset quality.
Corporate Governance Gaps: RBI highlights concerns over governance and succession planning in certain SFBs.
Rising NPAs: Microfinance sector NPAs hit an 18-month high, with further deterioration expected.
Regulatory Meetings: RBI held discussions with SFB managements to address these challenges.
Merger Benefits: Mergers with larger entities or geographically diverse banks could mitigate risks.
SEAC Formation: RBI sets up a committee to evaluate applications for universal and small finance banks.
Capital Backup Needed: Mergers with well-capitalized entities seen as a solution to stabilize stressed SFBs.