RBI Governor Sanjay Malhotra highlighted that India’s financial system continues to be a crucial support for the real economy and the country’s growth momentum. Banks and NBFCs are in a robust state, backed by strong capital and liquidity positions, healthy profitability, low non-performing assets, and solid credit growth.
In the RBI’s Financial Stability Report, Malhotra praised the resilience shown by the Indian economy and financial system in the face of significant external shocks. The report noted strong growth, low inflation, healthy balance sheets of financial and non-financial firms, and sufficient buffers contributing to macro-financial stability.
The report underlines that India’s sound macroeconomic fundamentals position it favorably compared to many peers, enhancing its resilience to external shocks. Recent policy measures by the government and the Reserve Bank, along with the interim peace deal, have further bolstered the balance of risks.
According to the report, the domestic financial system remains sturdy, supported by robust bank and non-bank balance sheets. Scheduled Commercial Banks (SCBs) are secure, with strong capital and liquidity buffers, improving asset quality, and steady profitability. Macro stress tests indicate the banking system’s ability to absorb potential shocks, with capital ratios expected to remain comfortably above regulatory thresholds even under adverse scenarios.
NBFCs are reported to be financially sound, with strong capitalization, healthy profitability, and better asset quality. The insurance sector also exhibits resilience, with life insurers’ solvency ratio exceeding the minimum threshold.
Malhotra emphasized the need to stay vigilant against evolving external and domestic risks, aiming to reinforce the safeguards protecting the economy and financial system. The report warned about potential challenges such as supply chain uncertainties impacting financial conditions and inflation, alongside concerns like high public debt, bond market vulnerabilities, asset valuation risks, and leveraged NBFIs that could magnify future shocks.
