The Reserve Bank of India (RBI), in its latest Financial Stability Report (FSR) released in December 2025, flagged that the Indian economy and financial system are set to face near-term risk from global uncertainties related to geopolitics and trade.
The central bank of the country highlighted that the global uncertainties can increase the exchange rate volatility, while dampening trade, in turn reducing the earnings. These external factors also have the capability to lower foreign investment.
“These factors could increase exchange rate volatility, dampen trade, reduce corporate earnings, and lower foreign investment,” said the RBI in its report released on 31 December 2025.
RBI’s Financial Stability Report is a half-yearly publication which is released with contributions from all financial sector regulators and represents the collective assessment based on current and emerging risks to the stability of the Indian financial system.
Key highlights from RBI’s Financial Stability Report
1. Global Macrofinancial Risks: The Reserve Bank of India said that the overall global growth has proven to be more resilient despite the trade tensions looming over the world economy and the uncertainty around economic policy.
However, the central bank also flagged that the outlook for the global macrofinancial risks remains on the downside due to the high public debt, risk of market correction, and elevated uncertainty.
“Ample liquidity is supporting risk-on sentiment across asset classes, but a sharp correction – especially if AI optimism fades – could spill over to the broader financial system, given rising interconnectedness,” said RBI in its report.
2. Domestic Macrofinancial Risks: On the domestic front, RBI highlighted how the Indian economy continues to grow, driven by strong domestic demand despite the global challenges.
“Benign inflation, fiscal consolidation, and prudent macroeconomic policies have enhanced economic resilience,” said the RBI.
Apart from flagging the near-term risk, RBI said that the Indian financial system remains ‘sound’ with support from strong balance sheets, easy financial conditions and lower market volatility in the economy.
3. Financial Institutions: On the ‘soundness’ and ‘resilience factor of Indian financial institutions, RBI said that the health of the scheduled commercial banks (SCBs) continues to remain robust with strong capital and liquidity buffers.
RBI‘s stress test for banks has reaffirmed that the banks can withstand losses in case any adverse scenario occurs, maintaining a capital buffer above the minimum regulatory level.
“The primary (urban) cooperative banks (UCBs), with some exceptions, remain healthy with sound capital buffers and continued strength in profitability, despite softening in net interest margin,” said RBI in its report.
In the case of non-banking financial companies (NBFCs), the asset quality continues to improve, while the profitability factor has stayed stable for the institutions.
“Stress test results for mutual funds and clearing corporations affirmed their resilience to adverse shocks,” said RBI. The regulator also highlighted how the insurance sector continues to remain resilient, supported by adequate capital buffers.
4. Regulatory Initiatives: RBI said that the Indian financial sector regulators have continued to improve their regulatory frameworks in an effort to increase their supervision.
The regulators are now working towards improving governance, accountability standards, strengthening customer and investor protection, and improving the ease of doing business in the economy.
RBI also said that the regulators are working on key initiatives to fundamentally reorganise the regulatory instructions to improve clarity, ease of access, and reduce compliance burden for regulated entities.