RBI flags global risks but says Indian 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 environment marked by uncertainty, heightened risks and bouts of market volatility.

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

In its overall assessment, the RBI said the global economy has demonstrated resilience in recent months, supported by fiscal stimulus, strong business activity and strong investment momentum, particularly in areas related to artificial intelligence. The central bank, however, warned that risks to the outlook remain high. High levels of public debt in several economies, ongoing geopolitical tensions and the possibility of sharp corrections in financial markets continue to present downside risks.

The report highlights that while global financial markets appear buoyant, deeper vulnerabilities are developing beneath the surface. The strong rally in stocks and other risk assets, the growing dominance of non-bank financial intermediaries and their growing interconnectedness with the banking system have added to systemic fragilities. The growing role of stablecoins has also been cited as a potential source of risk in an already complex global financial landscape.

In the face of 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 rigorous institutional supervision have helped protect the financial system from external shocks.

The central bank noted that domestic financial conditions remain favorable, with low market volatility and comfortable liquidity supporting credit flows. However, he warned of continued short-term risks, particularly due to global geopolitical developments, trade disruptions and changing international financial conditions.

The report highlights the continued strength of the Indian banking sector. Scheduled commercial banks (SCBs) are well capitalized, have strong capital and liquidity reserves, improved asset quality and sustained profitability. Macro stress tests conducted by the RBI indicate that banks are well equipped to withstand potential losses in severe but plausible adverse scenarios, while maintaining capital levels well above regulatory thresholds. The stress tests also highlighted the resilience of mutual funds and clearing companies.

Non-banking financial companies (NBFCs) are also in a stable position. The RBI said NBFCs continue to benefit from adequate capital buffers, stable profits and improving asset quality, thereby strengthening their capacity to absorb shocks. Likewise, the insurance sector remains solid, with a consolidated solvency ratio well above the regulatory minimum.

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