News: The Reserve Bank of India (RBI) released its June 2025 Financial Stability Report (FSR), highlighting the continued resilience of India’s financial system.
About RBI’s Financial Stability Report
- The Financial Stability Report is released by the RBI every 6 months.
- It is based on the collective assessment of the Financial Stability and Developmental Council (FSDC) Sub-Committee.
Financial Stability and Developmental Council
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Key Findings from RBI’s Financial Stability Report – June 2025
- Overall Financial System Resilience: The Indian financial system remains resilient, supported by strong balance sheets across banks and NBFCs. Stress tests confirm that most banks and financial entities can withstand adverse macroeconomic conditions.
- Banking Sector Stability: Banks exhibit multi-decadal low NPA ratios, robust capital buffers, and strong earnings. Macro stress tests show that most banks maintain adequate capital under hypothetical adverse scenarios.
- NBFCs and Insurers in Good Health: NBFCs show improving asset quality, healthy capital buffers, and strong profitability. The insurance sector’s consolidated solvency ratio remains above the regulatory threshold, indicating sound shock-absorption capacity.
- Other Financial Institutions: Mutual funds and clearing corporations are assessed to be stable and resilient.
- Global Headwinds and Uncertainty: The global financial environment is volatile, shaped by trade fragmentation, geopolitical tensions, climate risks, and technological disruptions. These uncertainties make policymaking and forecasting more challenging for central banks.
- Role of Financial Regulators: RBI Governor Sanjay Malhotra emphasized financial stability as essential—but not solely sufficient—for economic growth. Regulators are urged to remain vigilant, prudent, and agile in ensuring the safety, competition, and innovation of the financial sector.
- Growth and Inflation Outlook: Domestic growth remains strong, driven by macroeconomic fundamentals and prudent policies. Inflation outlook is benign, with expectations of sustained alignment with RBI’s target.
Key statistics
- Gross NPAs (Scheduled Commercial Banks): Dropped to 2.6%, marking the lowest level in over a decade.
- Capital to Risk-Weighted Assets Ratio (CRAR): Remained robust at 16.8%, indicating a well-capitalized banking sector.
- NBFC Sector: Maintained strong capital adequacy above 22%, with Gross NPA ratio improving to 4.2%.
- Mutual Funds: 98% of open-ended schemes are capable of absorbing 10% redemption shocks, reflecting strong liquidity management.
- Insurance Sector: Reported a solvency ratio of 1.95, comfortably exceeding the regulatory minimum.
- Foreign Exchange Reserves: Reached a new high of $642 billion as of June 2025, bolstering external sector stability.
