Financial System Remains Resilient Amid Global Uncertainty, Downside Risks Persist: RBI Report

New Delhi, Jan 1 (KNN) The Reserve Bank of India (RBI) on Wednesday released the December 2025 edition of its half-yearly Financial Stability Report (FSR), assessing the resilience of India’s financial system against a backdrop of global economic uncertainty. 

The report reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC), which includes all major financial sector regulators.

Global Environment: Resilience With Rising Vulnerabilities

The FSR noted that the global economy has shown resilience, supported by fiscal measures, front-loaded trade activity and strong investment linked to artificial intelligence. However, it cautioned that downside risks persist due to elevated uncertainty, high public debt levels and the possibility of a disorderly correction in financial markets.

While global financial markets appear strong, the report flagged growing underlying vulnerabilities, including sharp increases in equity and other risk asset valuations, the expanding role and interconnectedness of non-bank financial intermediaries with banks, and the rising presence of stablecoins.

Indian Economy: Strong Growth, External Risks Remain

Despite a challenging global backdrop, the RBI said the Indian economy continues to grow at a robust pace, supported by strong domestic demand, benign inflation and prudent macroeconomic policies. However, near-term risks remain from external factors, particularly escalating geopolitical and trade tensions and increasing geo-economic fragmentation.

In his foreword, RBI Governor Sanjay Malhotra said that notwithstanding an unfavourable external environment, the economy is projected to register high growth driven by domestic consumption and investment. He added that strong balance sheets, sizeable buffers and policy reforms have enhanced the resilience of both the economy and the financial system.

Financial System Stability and Stress Test Results

The domestic financial system remains sound and resilient, supported by strong balance sheets, easy financial conditions and low market volatility, the report said. 

Scheduled commercial banks (SCBs) continue to exhibit strong capital and liquidity buffers, improved asset quality and robust profitability.

Macro stress test results indicate that SCBs would be able to withstand losses under hypothetical adverse scenarios while maintaining capital levels well above regulatory minimums. Stress tests also confirmed the resilience of mutual funds and clearing corporations.

Non-banking financial companies (NBFCs) remain robust, supported by strong capital positions, solid earnings and improving asset quality. Stress tests showed that, barring a few outliers, the aggregate capital position of NBFCs would remain comfortably above regulatory requirements even under adverse shocks.

Insurance Sector and Financial Markets

The insurance sector continues to demonstrate balance-sheet resilience, with consolidated solvency ratios remaining above prescribed regulatory thresholds, supported by adequate capital buffers and steady capital accretion.

The FSR cautioned that global spillovers could increase exchange rate volatility, dampen trade flows, reduce corporate earnings and lower foreign investment. 

It warned that a sharp correction in US equities could affect domestic equity markets and tighten financial conditions, although strong buffers would help absorb potential shocks.

(KNN Bureau)