Financial Stability Report

Recently, The Reserve Bank of India has released the Financial Stability Report released in December 2025, providing a comprehensive assessment of the resilience and risks to India’s financial system.

Key Highlights of Report

Key Domestic Strengths

• Strong Economic Foundation: India’s economy continues to grow robustly, driven by domestic consumption and investment. 
• Resilient Financial System:
• • Banks: Scheduled Commercial Banks (SCBs) are healthy with strong capital, good asset quality, and robust profits. Stress tests confirm they can withstand severe shocks.
    • Both deposits and credit extended by Scheduled Commercial Banks (SCBs) grew in double digits.
    • The consolidated balance sheet of Scheduled Commercial Banks (SCBs) expanded by over 11% during the year.
    • The Gross Non-Performing Assets (GNPA) ratio declined to a multi-decadal low of 2.2% as of March 2025 improving further  to 2.1% by September 2025.
  • Non-Bank Financial Companies (NBFCs): Remain robust with solid capital and earnings.
  • Other Sectors: The insurance sector maintains strong solvency, and mutual funds and clearing corporations also show resilience.

Major Near-Term Risks & Global Concerns

• Geopolitical & Trade Tensions: Ongoing conflicts and strategic competition between major economies are disrupting supply chains and creating policy uncertainty.
• Tightening of Global Financial Conditions: Major central banks (like the U.S. Federal Reserve) may keep interest rates higher for longer or a crisis of confidence could trigger a “flight to safety.”
• Sharp Correction in Global Asset Markets: The RBI notes that U.S. equity markets appear overvalued, driven partly by excessive optimism around Artificial Intelligence (AI).
• Rise of New Financial Vulnerabilities: The report warns that the global financial landscape is evolving, creating new kinds of risks:
  • Non-Bank Financial Intermediation (NBFI) Growth: While NBFCs in India are healthy, globally, the opaque and rapidly growing private credit market could be a source of hidden leverage and risk.
  • Stablecoins & Crypto-Assets: Their growing interconnection with traditional finance poses a risk of sudden, destabilizing spillovers if a major digital asset fails or faces a crisis of confidence.

About the Financial Stability Report

• The Financial Stability Report (FSR) is a bi-annual (half-yearly) publication by the Reserve Bank of India (RBI).
• The FSR is essentially the RBI’s “financial health check-up” for the country, ensuring stakeholders are aware of strengths and vulnerabilities in the system.

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Key Objectives of the FSR

• Risk Assessment: Identifies current and emerging risks to financial stability—both domestic and global.
• Health Check: Evaluates the soundness of key financial institutions like banks, non-banking financial companies (NBFCs), insurance companies, and financial markets.
• Stress Testing: Includes hypothetical adverse scenarios (like economic downturns or market crashes) to test whether banks and other institutions can withstand losses.
• Policy Signaling: Communicates the RBI’s and other financial regulators’ views on systemic risks, often shaping future regulatory actions.

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