Key Points

The Reserve Bank, in the June 2025 issue of its 'Financial Stability Report (FSR)', said that elevated economic and trade policy uncertainties are testing the resilience of the global economy and the financial system.

“Financial markets remain volatile, especially core government bond markets, driven by shifting policy and geopolitical environment. Alongside, existing vulnerabilities such as soaring public debt levels and elevated asset valuations have the potential to amplify fresh shocks,” it read.

However, the domestic financial system is exhibiting resilience fortified by healthy balance sheets of banks and non-banks, said the Central Bank.

Financial conditions have eased supported by accommodative monetary policy and low volatility in financial markets. The strength of the corporate balance sheets also lends support to overall macroeconomic stability.

“The soundness and resilience of scheduled commercial banks (SCBs) are bolstered by robust capital buffers, multi-decadal low non-performing loans ratio and strong earnings,” the RBI report mentioned.

Results of macro stress tests affirm that most SCBs have adequate capital buffers relative to the regulatory minimum even under adverse stress scenarios. Stress tests also validate the resilience of mutual funds and clearing corporations.

“Non-banking financial companies (NBFCs) remain healthy with sizable capital buffers, robust earnings and improving asset quality. The consolidated solvency ratio of the insurance sector also remains above the minimum threshold limit,” it noted.

In this global milieu, the Indian economy remains a key driver of global growth. Growth momentum is buoyed by strong domestic growth drivers, sound macroeconomic fundamentals and prudent policies.

“Nonetheless, external spillovers and weather-related events could pose downside risks to growth. The outlook for inflation, on the other hand, is benign and there is greater confidence in the durable alignment of inflation with the Reserve Bank’s target,” said Sanjay Malhotra, Governor, RBI.

Financial sector regulators remain committed to protecting customers, promoting competition and fostering innovation as they strike the right balance between improving efficiency and growth, and safety and soundness.

“Financial stability, like price stability, is a necessary condition, and not a sufficient one to boost India’s potential growth. As custodians of financial stability, we must endeavour to develop a well-functioning financial system that not only promotes macroeconomic stability but also provides financial services efficiently,” said Malhotra.

- IANS