The Reserve Bank of India said the Indian economy continues to perform well amid a resilient global economy and strong global financial markets.
In its December edition of the Financial Stability Report, the RBI said, “Despite an uncertain and challenging global economic backdrop, the Indian economy continues to grow strongly, underpinned by robust domestic demand, benign inflation, and prudent macroeconomic policies.”
Here are five key reasons why the RBI believes India’s financial system remains strong and stable despite tariffs and geopolitical tensions.
Global economy steady, but risks remain
The RBI said the global economy has shown resilience so far, supported by fiscal measures, front-loaded trade activity and strong investment linked to artificial intelligence. However, it cautioned that downside risks continue to persist.
“Downside risks persist due to still elevated uncertainty, high public debt, and the risk of a disorderly market correction.”
Markets look strong, vulnerabilities building underneath
RBI noted that global financial markets appear robust on the surface, but underlying vulnerabilities are increasing. A sharp rise in equity prices and other risk assets has raised concerns over stretched valuations.
The growing role of non-bank financial intermediaries, their deeper interconnectedness with banks and the rapid expansion of stablecoins are also adding to fragilities in the global financial system, the report said.
Domestic financial system remains robust
The RBI noted that India’s financial system remains robust and resilient, supported by strong balance sheets, easy financial conditions and low volatility in financial markets.
However, it flagged near-term risks stemming from external factors such as geopolitical developments and trade-related uncertainties.
Banks remain well-capitalised and profitable
The health of scheduled commercial banks remains sound, the report said. Banks continue to maintain strong capital and liquidity buffers, improved asset quality and robust profitability.
Macro stress tests conducted by the RBI show that banks can withstand losses even under adverse scenarios while maintaining capital levels well above regulatory requirements.
NBFCs, mutual funds and insurers show resilience
Non-banking financial companies also remain robust, according to RBI, backed by strong capital buffers, solid earnings and improving asset quality.
Stress tests also confirmed the resilience of mutual funds and clearing corporations. The insurance sector continues to display balance sheet strength, with consolidated solvency ratios remaining above the minimum threshold.
