NEW DELHI, Jan 1: The Reserve Bank of India (RBI) said India’s economy and financial system remain resilient despite heightened global uncertainties, elevated asset valuations, and rising geopolitical risks, according to the Financial Stability Report (FSR), December 2025.
The report noted that global growth has shown greater resilience than anticipated, supported by fiscal measures, front-loaded trade, and strong investment in artificial intelligence (AI).
However, it cautioned that risks to global financial stability remain elevated due to high public debt, stretched asset prices, growing interconnectedness of non-bank financial intermediaries, and the rapid expansion of private credit and stablecoins.
On the domestic front, the RBI said India continues to grow at a robust pace, driven by strong domestic demand, easing inflation, and prudent macroeconomic policies.
The financial system remains healthy, supported by strong balance sheets of banks and non-bank lenders, comfortable capital and liquidity buffers, and low market volatility.
The Financial System Stress Indicator (FSSI) remains at relatively low levels, indicating limited systemic stress.
The report highlighted that India’s near-term risks stem largely from external factors, including potential escalation of geopolitical and trade tensions and volatility in global financial markets.
A sharp correction in US equity markets could spill over to domestic markets, impacting investor confidence and financial conditions.
India’s external sector remains resilient, with manageable current account deficit levels and strong foreign exchange reserves of over USD 693 billion, sufficient to cover around 11 months of imports.
External vulnerability indicators, including external debt and short-term debt ratios, continue to show improvement.
The RBI also flagged emerging global risks such as rising leverage in hedge funds, increased reliance on short-term sovereign borrowing in advanced economies, and growing concentration in AI-driven equity markets, which could amplify market corrections.
Overall, the RBI said strong domestic growth drivers, fiscal consolidation efforts, and adequate buffers across the financial and corporate sectors place India in a better position to withstand adverse global shocks, even as it remains vigilant to evolving macrofinancial risks. (UNI)
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