Introduction
The Reserve Bank of India’s (RBI) June 2025 Financial Stability Report (FSR) underscores the resilience of India’s financial system amidst global uncertainties. While domestic demand continues to drive growth, the RBI cautions against potential risks arising from external spillovers, emphasizing the need for vigilant monitoring and proactive policy measures.
Global Risks and Domestic Implications
The RBI identifies several global factors that could impact India’s financial stability:
Geopolitical Tensions and Trade Disruptions: Ongoing global trade disputes and geopolitical conflicts may negatively affect domestic growth and bank credit demand.
Investor Risk Aversion: Heightened global uncertainties could lead to increased risk aversion among investors, potentially triggering corrections in domestic equity markets.
Financial Market Stress: The RBI notes a slight uptick in financial system stress indicators due to global spillovers.
Despite these challenges, the RBI projects a 6.5% GDP growth for the current year, maintaining the previous year’s growth rate, supported by robust domestic demand and sound macroeconomic fundamentals.
Banking Sector Resilience
India’s banking sector demonstrates strong resilience:
Improved Asset Quality: Gross Non-Performing Assets (GNPA) for Scheduled Commercial Banks (SCBs) have declined to a multi-decadal low of 2.3% as of March 2025.
Capital Adequacy: Stress tests indicate that even under adverse scenarios, banks are projected to maintain capital adequacy ratios above the regulatory minimum of 9%, showcasing the sector’s robustness.
Profitability: The banking sector has recorded enhanced profitability, reflecting stronger financial health and proactive asset resolution strategies.
Inflation Outlook and External Sector Stability
The RBI projects a favorable outlook for inflation:
Controlled Inflation: Consumer Price Index (CPI) inflation is aligning with the RBI’s target of 4% ± 2% band, with May 2025 CPI at 2.8%, the lowest since February 2019.
External Sector Stability: The current account deficit remains manageable at 0.6% of GDP for 2024-25, contributing positively to India’s macroeconomic and financial stability.
Conclusion
While India’s financial system remains robust, the RBI emphasizes the importance of proactive measures to mitigate potential risks from external spillovers. Continuous monitoring and strategic policy interventions are essential to safeguard the economy against global uncertainties.