What Does the Latest RBI Report Reveal About India's Economic Resilience?
RBI's Insights on India's Economic Stability
According to a recent report from the Reserve Bank of India (RBI), the Indian economy is experiencing significant growth, fueled by strong domestic demand, manageable inflation, and the solid financial health of banks. This information was highlighted in the December 2025 edition of the Financial Stability Report (FSR).
The report emphasizes that the domestic financial landscape is stable and resilient, supported by robust balance sheets, favorable financial conditions, and minimal volatility in financial markets.
However, it also warns of potential short-term risks stemming from external factors, including geopolitical tensions and trade issues. This assessment is based on insights from the Sub-Committee of the Financial Stability and Development Council (FSDC) regarding the Indian financial system's resilience and stability risks.
The health of scheduled commercial banks (SCBs) is reported to be strong, characterized by solid capital and liquidity reserves, enhanced asset quality, and strong profitability.
Results from macro stress tests indicate that SCBs are well-equipped to absorb losses in hypothetical adverse scenarios while maintaining capital buffers significantly above the regulatory requirements. The resilience of mutual funds and clearing corporations has also been confirmed through these tests.
The report forecasts an improvement in the gross non-performing assets (GNPA) ratio of banks, projecting it to decrease to 1.9% by March 2027 under a baseline scenario. As of September 2025, this ratio was at a historic low of 2.1%, according to the central bank's half-yearly FSR.
It is anticipated that the aggregate GNPA ratio for 46 banks could decline from 2.1% in September 2025 to 1.9% by March 2027, based on the baseline scenario. However, under adverse conditions, this ratio could rise to 3.2% and 4.2%, as indicated by the RBI's stress test results.
From a capital perspective, the report notes that the capital to risk-weighted assets ratio (CRAR) remained robust as of September, with state-owned banks at 16% and private banks at 18.1%. This suggests that banks are well-prepared to handle economic shocks, with the report detailing how capital buffers may be affected in challenging situations.
On the economic front, the report highlights that real GDP growth exceeded expectations in both Q1 and Q2 of 2025-26, recording growth rates of 7.8% and 8.2%, respectively, driven by strong private consumption and public investment.
The growth outlook remains optimistic, supported by low inflation, favorable financial conditions, above-average monsoon rains, tax reforms, and the ongoing development of digital public infrastructure.
Regarding the domestic currency, the report notes that the rupee has depreciated against the US dollar, influenced by declining terms of trade due to high tariffs and a slowdown in capital inflows. Despite a general weakening of the US dollar against other major currencies, the rupee's depreciation is attributed to the highest effective US tariff rate on India compared to its trading partners.