RBI flags global risks but says India’s financial system remains resilient

The Reserve Bank of India (RBI) on Wednesday released the December 2025 edition of its Financial Stability Report (FSR), reaffirming that India’s financial system remains stable and resilient despite a challenging global backdrop marked by uncertainty, heightened risks and bouts of market volatility.

The assessment is based on the collective views of the Sub-Committee of the Financial Stability and Development Council (FSDC), which reviews systemic risks and vulnerabilities that could threaten financial stability.

In its global assessment, the RBI said the world economy has shown resilience in recent months, supported by fiscal stimulus, front-loaded trade activity and strong investment momentum, particularly in areas linked to artificial intelligence. However, the central bank cautioned that risks to the outlook remain elevated. High public debt levels in several economies, persistent geopolitical tensions and the possibility of abrupt corrections in financial markets continue to pose downside risks.

The report flagged that while global financial markets appear buoyant, deeper vulnerabilities are building beneath the surface. Sharp rallies in equity and other risk assets, the growing dominance of non-bank financial intermediaries, and their increasing interconnectedness with the banking system have added to systemic fragilities. The expanding role of stablecoins was also cited as a potential source of risk in an already complex global financial landscape.

Against this uncertain external environment, the RBI said India’s macroeconomic fundamentals remain strong. The domestic economy continues to grow at a healthy pace, supported by resilient consumer demand, easing inflationary pressures and a stable policy framework. Prudent macroeconomic management and strong institutional oversight have helped insulate the financial system from external shocks.

The central bank noted that domestic financial conditions remain favourable, with low market volatility and comfortable liquidity supporting credit flow. However, it cautioned that near-term risks persist, particularly from global geopolitical developments, trade disruptions and shifts in international financial conditions.

The report highlighted the continued strength of India’s banking sector. Scheduled commercial banks (SCBs) are well-capitalised, with strong capital adequacy and liquidity buffers, improved asset quality and sustained profitability. Macro stress tests conducted by the RBI indicate that banks are well equipped to withstand potential losses under severe but plausible adverse scenarios, while maintaining capital levels well above regulatory thresholds. Stress tests also pointed to the resilience of mutual funds and clearing corporations.

Non-banking financial companies (NBFCs) were also found to be in a stable position. The RBI said NBFCs continue to benefit from adequate capital buffers, steady earnings performance and improving asset quality, reinforcing their ability to absorb shocks. Similarly, the insurance sector remains on a sound footing, with the consolidated solvency ratio comfortably above the minimum regulatory requirement.

Overall, the RBI’s latest Financial Stability Report underscores the strength of India’s financial system at a time of heightened global uncertainty, while emphasising the need for continued vigilance as external and domestic risks evolve.