Rising global public debt has been a recurring issue highlighted in recent FSRs and it remains a key concern, especially in the context of elevated uncertainty,” the RBI said in the report.
| Photo Credit: FRANCIS MASCARENHAS
Despite an uncertain and challenging global economic backdrop, the Indian economy remains a key driver of global growth, underpinned by sound macroeconomic fundamentals and prudent macroeconomic policies, the Reserve Bank of India (RBI) said in its half-yearly publication, the Financial Stability Report (FSR), which was released on Monday.
Sanjay Malhotra, RBI Governor in the foreword said, “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,” he said.
“The resilience of the domestic financial system is continuously improving, bolstered by strong capital buffers, low non-performing loans and robust profitability,” he said.
“Results of stress tests reaffirm the strength of the banking and non-banking sectors with capital levels projected to remain well above the regulatory minimum even under adverse shock scenarios. The healthy balance sheets of corporates, banks and non-bank financial companies (NBFCs) augur well for the economy,” he added.
As per the FSR, financial conditions have eased, supported by an accommodative monetary policy and low volatility in the financial markets. The strength of the corporate balance sheets also lent support to overall macroeconomic stability, it said.
“The soundness and resilience of scheduled commercial banks (SCBs) were bolstered by robust capital buffers, multi-decadal low non-performing loans ratio and strong earnings, according to the FSR.
Stating that results of macro stress tests had affirm that most Scheduled Commercial Banks had adequate capital buffers relative to the regulatory minimum even under adverse stress scenarios, it said stress tests also validated 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 said.
According to the latest round of the Reserve Bank’s systemic risk survey (SRS) conducted in May 2025, all major risk groups remain in the ‘medium risk’ category.
Respondents remained optimistic about the soundness of the domestic financial system, with 92% expressing higher or similar level of confidence in the Indian financial system.
Geopolitical conflicts, capital outflows and reciprocal tariff/trade slowdown were identified as major near-term risks to domestic financial stability as per the FSR.
“Risks emanating from global spillovers and escalation in geopolitical tensions and policy uncertainties remain a key concern,” the FSR has flagged.
“Rising global public debt has been a recurring issue highlighted in recent FSRs and it remains a key concern, especially in the context of elevated uncertainty,” it added.
Published – June 30, 2025 08:54 pm IST
