Business & Finance

RBI Financial Stability Report: India’s Economy Shines Amid Global Challenges

The RBI Financial Stability Report reveals how India’s economy is outperforming global peers despite mounting challenges. This brief analysis highlights the key strengths driving resilience and what they signal for the months ahead.

Deepak Singh

02 Jul 2025 — 7 min read

The Reserve Bank of India’s June 2025 Financial Stability Report highlights India’s resilient economy, driven by strong macro-fundamentals, robust banking sectors, and prudent policies, despite global uncertainties like trade tensions and geopolitical risks.

Introduction: Can India’s Economy Weather the Global Storm?

Imagine a ship sailing steadily through choppy waters while storms rage around it. That’s India’s economy in 2025, according to the Reserve Bank of India’s (RBI) Financial Stability Report, released on June 30, 2025. Despite global headwinds—think trade wars, geopolitical tensions, and volatile markets—India stands tall as a beacon of growth. The report paints a picture of resilience, with strong macro-fundamentals like low inflation, robust banking capital, and steady GDP growth keeping the economy on course. Why does this matter? Because a stable financial system isn’t just numbers on a page—it’s the backbone of jobs, businesses, and your everyday life. Let’s dive into what the RBI’s report tells us about India’s financial stability and what it means for you.

What Is the RBI Financial Stability Report?

The RBI’s Financial Stability Report (FSR) is a biannual health check on India’s financial system. Published by the Sub-Committee of the Financial Stability and Development Council (FSDC), it assesses risks, resilience, and trends in banking, non-banking financial companies (NBFCs), and markets. The June 2025 edition, released amid global uncertainties, underscores India’s ability to thrive despite challenges. It’s like a report card for the economy, showing where India excels and where vigilance is needed to maintain financial stability.

Why Is India’s Economy a Global Growth Driver?

India’s economy is projected to grow at 6.5% in FY26, outpacing many global peers. The RBI credits this to strong macro-fundamentals like:

Robust domestic demand: Rural consumption and infrastructure spending fuel growth.
Stable inflation: CPI inflation hit a six-year low of 2.8% in May 2025, with food prices softening due to record crop production.
Corporate strength: Healthy corporate balance sheets support investment and stability.

Despite global risks like a 100 bps slowdown in world growth potentially shaving 30 bps off India’s GDP, domestic drivers keep the economy resilient.

How Strong Is India’s Banking Sector?

The backbone of financial stability is a robust banking sector. The RBI reports that scheduled commercial banks (SCBs) are in top shape:

Low non-performing assets (NPAs): Gross NPAs dropped to 2.3% in March 2025, a multi-decadal low.
Strong capital buffers: The capital-to-risk-weighted assets ratio (CRAR) stands at 17.2%, well above regulatory minimums.
Stress test resilience: Even under severe scenarios, banks maintain adequate capital, ensuring they can absorb economic shocks.

This strength means banks can lend confidently, supporting businesses and consumers alike.

What About Non-Banking Financial Companies (NBFCs)?

NBFCs, once a concern due to funding issues, have bounced back. The FSR notes:

Healthy capital buffers: NBFCs maintain a CRAR of 26.6%, reflecting strong financial health.
Improved asset quality: Their GNPA ratio improved to 4.0% by March 2024, with robust earnings.
Moderated growth: Loan growth slowed to 6.5% in H1 FY25 due to tighter regulations, reducing risk.

This stability ensures NBFCs can support credit needs without destabilizing the system.

What Global Risks Threaten India’s Financial Stability?

While India’s macro-fundamentals are strong, the FSR flags global risks that could spill over:

Geopolitical tensions: Conflicts, like those in the Middle East, could disrupt trade and oil prices.
Trade policy uncertainties: U.S. tariffs, potentially impacting $10–12 billion in Indian exports, pose risks.
Volatile capital flows: Sudden outflows could pressure India’s forex reserves, though they topped $642 billion in June 2025.

The RBI emphasizes vigilance to mitigate these external threats to financial stability.

How Do Global Markets Impact India?

Financial markets are a barometer of financial stability. The FSR notes:

Market volatility: Global bond markets, especially core government bonds, are volatile due to shifting policies.
Elevated asset valuations: Overvalued global assets could amplify shocks if markets correct.
India’s resilience: Strong domestic investor participation and stable macroeconomic policies keep Indian markets steady.

However, the RBI warns that global market corrections could introduce volatility in India’s asset prices and currency markets.

What Role Does Inflation Play in India’s Macro-Fundamentals?

Inflation is a key pillar of India’s macro-fundamentals. The FSR highlights:

Low domestic inflation: CPI inflation at 2.8% in May 2025, driven by softening food prices.
Imported inflation risks: Stable crude oil prices minimize external pressures, though geopolitical tensions could change this.
Favorable outlook: Record crop production supports price stability, boosting consumer confidence.

This low-inflation environment strengthens financial stability by keeping purchasing power intact.

How Is India’s Bond Market Performing?

India’s bond market saw record issuances of ₹9.9 trillion in FY25, reflecting strong investor confidence. However:

Subdued secondary market: Limited trading activity hampers market depth.
Widening credit spreads: Liquidity constraints and global risk sentiment have slightly increased spreads.
Policy alignment: RBI’s digital lending norms and cybersecurity frameworks enhance market trust.

These trends support financial stability but highlight areas for improvement.

What Are the Domestic Risks to Financial Stability?

While India’s macro-fundamentals are robust, the FSR identifies domestic vulnerabilities:

Rising delinquencies: Unsecured retail loans, especially via digital apps, show higher overdue rates.
Shifting deposit profiles: A move from low-cost CASA to term deposits could pressure bank margins.
High public debt: The central government’s debt-to-GDP ratio is expected to drop to 56.8% by FY25, but it requires monitoring.

The RBI’s proactive regulations, like tightened lending norms, aim to mitigate these risks.

How Is the RBI Addressing Digital Lending Risks?

The rise of digital personal loans has raised red flags. The FSR notes:

High delinquency rates: Loans below ₹50,000, often via fintech apps, have a 5% delinquency rate among young borrowers.
Regulatory response: New digital lending norms improve borrower protection and app transparency.
Consumer risks: Easy access to credit can lead to debt traps, particularly for inexperienced borrowers.

These measures strengthen financial stability by curbing risky lending practices.

What Does the FSR Say About India’s Growth Outlook?

India’s GDP growth is projected at 6.5% for FY26, driven by:

Rural consumption: Rising incomes and government schemes boost spending.
Infrastructure investment: Public spending on roads, railways, and urban projects fuels growth.
Corporate deleveraging: Stronger balance sheets enable new investments.

These factors reinforce India’s macro-fundamentals, positioning it as a global growth engine.

How Do Regulators Ensure Financial Stability?

The RBI, along with SEBI, IRDA, and PFRDA, plays a crucial role in maintaining financial stability:

Stress testing: Regular tests ensure banks and NBFCs can withstand shocks.
Cybersecurity frameworks: Initiatives like FIRE and MNRL enhance threat monitoring.
Deposit insurance: Coverage spans 97.6% of accounts, protecting depositors.

These efforts create a robust financial ecosystem, safeguarding India’s macro-fundamentals.

RBI Financial Stability Report: Frequently Asked Questions

What is the RBI Financial Stability Report?

The RBI’s Financial Stability Report is a biannual assessment of India’s financial system, evaluating risks and resilience in banking, NBFCs, and markets. It highlights financial stability and macro-fundamentals.

Why is India’s economy considered resilient?

India’s economy is resilient due to strong macro-fundamentals like low inflation (2.8% in May 2025), robust banking capital, and steady GDP growth (6.5% projected for FY26). Domestic demand shields it from global shocks.

What are the key risks to India’s financial stability?

Global risks like geopolitical tensions, trade disruptions, and volatile capital flows threaten financial stability. Domestically, high public debt and digital loan delinquencies are concerns.

How strong is India’s banking sector in 2025?

The banking sector is robust, with a GNPA ratio of 2.3% and a CRAR of 17.2%. Stress tests confirm banks can handle adverse scenarios, supporting financial stability.

What role does inflation play in India’s economy?

Low inflation (2.8% in May 2025) and softening food prices bolster India’s macro-fundamentals, enhancing consumer confidence and economic stability.

How is the RBI addressing digital lending risks?

The RBI has introduced digital lending norms to improve transparency and protect borrowers, addressing high delinquency rates in small-ticket loans. This supports financial stability.

How is the RBI addressing digital lending risks?

India’s GDP is projected to grow at 6.5% in FY26, driven by rural consumption, infrastructure spending, and corporate deleveraging, reinforcing strong macro-fundamentals.

Conclusion: India’s Economy Stands Strong

The RBI’s June 2025 Financial Stability Report paints an optimistic yet cautious picture of India’s economy. With a robust banking sector, low inflation, and strong macro-fundamentals, India remains a global growth driver. However, global risks and domestic challenges like digital lending delinquencies require vigilance to maintain financial stability. Want to dive deeper? Check out our guides on India’s economic growth strategies or global financial risks, and share your thoughts in the comments below