India’s economy is expanding at a robust pace, supported by strong domestic demand, low inflation and healthy bank balance sheets, the Reserve Bank of India said in a financial stability report released on Wednesday, even as it flagged risks from global uncertainties.
The domestic financial system remains resilient, backed by strong capital positions, ample liquidity, easy financial conditions and low market volatility, the central bank said in its December 2025 Financial Stability Report (FSR).
“Nonetheless, there are near-term risks from external uncertainties – geopolitical and trade-related,” the RBI said, reflecting the collective assessment of the Sub-Committee of the Financial Stability and Development Council on risks to the financial system.
The country's scheduled commercial banks remain in sound health, with strong capital and liquidity buffers, improved asset quality and robust profitability, the report said. Stress tests showed banks would be able to withstand losses under hypothetical adverse scenarios while maintaining capital well above regulatory minimums.
The RBI said stress tests also confirmed the resilience of mutual funds and clearing corporations.
Under a baseline scenario, the gross non-performing assets (GNPA) ratio of banks is expected to improve further to 1.9 per cent by March 2027. As of September 2025, the GNPA ratio stood at 2.1 per cent, a multi-decade low, according to the half-yearly report.
The central bank said the GNPA ratio could rise to 3.2 per cent and 4.2 per cent under adverse stress scenarios.
Capital buffers remained strong as of September, with the capital to risk-weighted assets ratio at 16 per cent for state-owned banks and 18.1 per cent for private sector lenders, the RBI said, adding that banks would be able to absorb economic shocks even under adverse conditions.
On the broader economy, the report said India’s real gross domestic product growth surprised on the upside in the first two quarters of the 2025-26 financial year, expanding 7.8 per cent in the April–June period and 8.2 per cent in July-September.
The growth outlook remains positive, supported by strong private consumption, public investment, low inflation, easy financial conditions, an above-normal monsoon, tax reforms and the continued expansion of digital public infrastructure, the RBI said. |
