Financial sector regulators must walk the tightrope to balance growth with stability: Economic Survey

In today’s era dominated by global uncertainties, India’s financial sector regulators must walk the tightrope to balance growth with stability, noted the Economic Survey 2025-26 which was tabled in the Parliament on Thursday (January 29, 2026).

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“They must strike a balance between openness to global capital flows and the need to insulate the domestic economy from volatile external shocks,” it pointed out. 

Moreover, given India’s heterogeneous financial landscape, where sophisticated metropolitan markets coexist alongside underserved rural segments, the Survey recommended that regulators must exercise differentiated supervision: a shorter leash for emerging or fragile segments prone to excessive risk-taking and greater latitude for mature markets.

Highlights of Economic Survey 2025-26

“In this context, so far, India’s financial sector regulators have managed the balancing act deftly,” it stated. 

As per the Survey, India’s monetary and financial sectors exhibited robust performance in FY26 (April- December 2025), underpinned by strategic policy actions and structural resilience across financial intermediation channels.

“A significant improvement has been observed in the asset quality of scheduled commercial banks (SCBs), as evidenced by their GNPA ratio standing at 2.2% in September 2025 and net NPA ratio at 0.5% in September 2025, having reached a multi-decadal low level and record low level, respectively,” it has mentioned. 

As of 31 December 2025, the year-on-year growth in outstanding credit by Scheduled Commercial Banks (SCBs) increased to 14.5% compared to 11.2% in December 2024, the Survey pointed out. 

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Stating that during FY26 (till December 2025), 2.35 crore of demat accounts were added, pushing the total count beyond 21.6 crore, it said the 12-crore mark key milestone of unique investors was crossed in September 2025, with nearly a fourth of them being women.

The mutual fund industry also expanded, with 5.9 crore unique investors as of the end of December 2025, of which 3.5 crore (as of November 2025) were from non-tier-I and tier-II cities, underscoring the diffusion of financial participation beyond traditional urban centres.

The Economic Survey emphasised that in the presence of rapid geopolitical fragmentation, the financial sector has become a channel for the transmission of global shocks. 

“Thus, emerging markets face the task of leveraging the benefits of globalised finance and simultaneously minimising the costs that stem from volatile shocks,” it said.

In this context, regulatory innovation, transparency, and accountability are crucial for addressing the challenges of an uncertain era, it highlighted.

Emphasising that tapping into innovative and inclusive channels of domestic finance was necessary, as these could serve as a buffer against shocks to volatile global finance and simultaneously advance the goals of growth and development, it said in an era characterised by heightened global uncertainty, geopolitical flux, and rapid technological transformation, the quality of financial sector regulation had emerged as a critical determinant of economic resilience and sustained growth. 

“India’s financial regulatory architecture demonstrates a clear recognition of this imperative, as evidenced by RBI’s landmark framework for the formulation of regulations issued in May 2025,” it pointed out.

“This framework institutionalises a transparent, consultative, and impact-driven approach to regulation-making, one that incorporates periodic reviews, stakeholder engagement through the Advisory Group on Regulation, and a dedicated Regulatory Review Cell tasked with systematically examining each regulation at least once every five to seven years,” it stressed. 

“Such measures signal a paradigm shift from reactive regulation to proactive, anticipatory governance that can respond dynamically to evolving market conditions and global best practices,” it stated. 

Noting that SEBI has demonstrated a parallel commitment to regulatory modernisation and investor protection, it said India’s regulatory bodies for insurance and pension — IRDAI and PFRDA — have similarly advanced reforms to deepen financial inclusion and extend protection to underserved segments. 

“The systemic rise in regulatory quality has received international validation through the Financial Sector Assessment Program (FSAP) conducted jointly by the IMF and World Bank in 2025,” the Survey has mentioned.

“Both reports noted an increasingly resilient, diversified, and inclusive financial system, with total financial sector assets at nearly 187% of GDP in CY 2024 and capital markets expanding from 144 per cent of GDP in CY2017 to 175% in CY 2024,” it said. 

The assessments found that banks and NBFCs possess adequate capital buffers even under severe stress scenarios, it added.

Published – January 29, 2026 06:23 pm IST