The Reserve Bank of India’s (RBI) latest Financial Stability Report, released on Monday, highlights the strong macroeconomic fundamentals supporting the Indian economy. It points to healthy balance sheets across banks and non-banks, with returns on assets reaching decadal highs.
“The Indian economy is exhibiting steady growth, underpinned by solid macroeconomic fundamentals and strong domestic growth drivers,” the report states.
Indian Banking Sector Shows Strong Profitability And Low NPAs
The report notes the soundness of scheduled commercial banks (SCBs), which have been bolstered by strong profitability, a decline in non-performing assets (NPAs), and ample capital and liquidity buffers. The return on assets (RoA) and return on equity (RoE) are at decade-high levels. The gross non-performing asset (GNPA) ratio has dropped to a multi-year low.
Macro stress tests reveal that most banks maintain adequate capital buffers above the regulatory minimum, even under adverse conditions. The report also confirms that mutual funds and clearing corporations show resilience in these stress scenarios.
Vulnerabilities and Regulatory Focus On Financial Stability
Non-banking financial companies (NBFCs) continue to remain healthy, supported by strong capital buffers, robust interest margins, and improving asset quality. The consolidated solvency ratio of the insurance sector stays above the minimum threshold.
Despite heightened uncertainty, the global economy and financial system remain resilient. The report acknowledges that while near-term risks have receded, vulnerabilities such as stretched asset valuations, high public debt, prolonged geopolitical conflicts, and emerging technological risks pose medium-term challenges to financial stability.
The Indian financial system remains resilient, supported by strong capital buffers and improving asset quality. However, vulnerabilities such as stretched equity valuations and stress in the microfinance and consumer credit segments need close monitoring.
Domestic regulatory efforts continue to focus on bolstering the resilience of financial intermediaries, enhancing market infrastructure, and addressing risks related to cyber resilience, fraud prevention, and customer protection.
On a global scale, regulatory initiatives prioritize mitigating risks from technological advancements, cybersecurity threats, and third-party dependencies. They also focus on vulnerabilities in non-bank financial intermediaries and cross-border payment systems.
Also Read: Government To Introduce Strict Law To Curb Unregulated Lending Activities
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