RBI Governor says financial stability is essential for growth, urges vigilance as global structural shifts make policymaking harder amid trade fragmentation, climate risks, and geopolitical tensions.
India’s insurance sector also continues to meet regulatory norms. | Photo: Bloomberg
India’s financial system continues to demonstrate resilience, underpinned by strong balance sheets across banks and non-bank financial institutions (NBFCs), according to the Reserve Bank of India’s June 2025 Financial Stability Report (FSR).
“The domestic financial system is exhibiting resilience, fortified by healthy balance sheets of banks and non-banks,” the central bank said in the report.
The RBI noted that the soundness and resilience of banks are supported by “robust capital buffers, multi-decadal low NPA ratio, and strong earnings.” Most banks were found to have adequate capital buffers under macro stress test scenarios, the report said.
NBFCs, too, remain in good shape. “NBFCs remain healthy with sizeable capital buffers, robust earnings, and improving asset quality,” the RBI observed.
Insurers above solvency threshold
India’s insurance sector also continues to meet regulatory norms. “The consolidated solvency ratio of the insurance sector remains above the minimum threshold limit,” the report said, suggesting that insurers are adequately capitalised to absorb shocks.
The report also highlighted that mutual funds and clearing corporations remain stable. “Macro stress tests affirm most banks have adequate capital buffers, validate resilience of mutual funds and clearing corporations,” the RBI said.
Global uncertainties weigh on financial markets
While the domestic financial system remains robust, the global financial environment remains uncertain. “Elevated economic and trade policy uncertainties are testing the resilience of the global economy and financial system,” the central bank noted.
It added that “financial markets remain volatile mainly due to the shifting policy and geopolitical environment.”
Global changes complicate policymaking: Sanjay Malhotra
Reserve Bank of India Governor Sanjay Malhotra on Monday underlined the importance of financial stability as a key factor in supporting economic growth. In the foreword to the June edition of the Financial Stability Report (FSR), he said that, like price stability, financial stability is “a necessary condition” for boosting growth, though not sufficient on its own.
“There are many structural shifts that are reshaping the global economy, including growing fragmentation in trade, rapid technological disruption, ongoing climate change and protracted geopolitical hostilities,” he said. “They make economic forecasts difficult and policy interventions challenging. Therefore, even as they navigate through the fog of uncertainty, it is imperative for central banks and financial sector regulators to remain vigilant, prudent and agile in safeguarding their economies and financial systems.”
Malhotra stressed the role of regulators in ensuring a healthy financial system. “Financial sector regulators remain committed to protecting customers, promoting competition and fostering innovation as they strike the right balance between improving efficiency and growth, and safety and soundness,” he said. He added that as guardians of financial stability, regulators aim to develop a system that supports broader economic stability while delivering financial services effectively.
Outlook for inflation is benign: Sanjay Malhotra
Despite rising global uncertainty, the Governor said India continues to play a central role in driving global growth. “Growth momentum is buoyed by strong domestic growth drivers, sound macroeconomic fundamentals and prudent policies. Nonetheless, external spillovers and weather-related events could pose downside risks to growth,” he cautioned.
On inflation, Malhotra expressed optimism. “The outlook for inflation, on the other hand, is benign and there is greater confidence in the durable alignment of inflation with the Reserve Bank’s target,” he said. Commenting on the findings of the latest FSR, Malhotra said that India’s financial system is becoming more resilient. “As this edition of the FSR highlights, the resilience of the domestic financial system is continuously improving, bolstered by strong capital buffers, low non-performing loans and robust profitability,” he said.
Published – June 30, 2025
Source : https://www.business-standard.com/
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