RBI’s Financial Stability Report (FSR), 2025
RBI Released the Financial Stability Report (FSR), released on June 30, 2025, presents a biannual assessment of systemic risks and resilience in India’s financial ecosystem.
Economic Health & Growth
- India continues as a key global growth driver, underpinned by strong macroeconomic fundamentals and prudent fiscal/monetary policy
- GDP growth forecast: 5% in FY2026, 6.7% in FY2027
Asset Quality & Capital Buffers
- Gross Non-Performing Asset (GNPA) ratio for 46 major banks stands at a multi-decade low of 2.3% (March 2025), expected to rise to 5–2.6% by March 2027 under baseline scenarios
- Banks’ Capital-to-Risk-Weighted Assets Ratio (CRAR) is a robust 2%, likely slightly declining to 17% by 2027. Even under severe stress, it remains well above the regulatory minimum of 9%
| Term | Definition |
|---|---|
| Gross Non-Performing Asset (GNPA) Ratio | GNPA ratio reflects the percentage of a bank's total loans that are in default or not generating income. Lower GNPA indicates better asset quality and healthier financial institutions. |
| Capital-to-Risk-Weighted Assets Ratio (CRAR) | CRAR measures a bank’s capital in relation to its risk-weighted assets. A higher CRAR ensures financial stability, enabling banks to absorb potential losses and protect depositors during economic stress. |
Resilience Under Stress
- Under severe stress (geopolitical shocks, global slowdown), GNPA could jump to 3–5.6%; CRAR may dip to 14.2%, but still exceeds regulatory thresholds .
- Tier‑1 banking capital and liquidity coverage ratios stay healthy. No banks breach minimums even in adverse scenarios
NBFCs, Mutual Funds & Insurance
- Non Banking Financial Companies (NBFCs) exhibit solid capital buffers (>22%), improving GNPAs, and sound earnings
- Mutual funds can handle 10% redemptions in 98% of open-ended schemes
- Insurance sector maintains regulatory solvency at ~1.95 times requirement
What are Non-Banking Financial Companies (NBFCs)?
- Non-Banking Financial Companies (NBFCs) are financial institutions that provide banking-like services such as loans, asset financing, investment, and insurance, without holding a banking license.
- They are registered under the Companies Act, 2013 and regulated by the Reserve Bank of India (RBI) under the RBI Act, 1934.
Key Features of NBFCs:
| Feature | Explanation |
|---|---|
| Not a bank | Cannot issue cheques or provide savings/current accounts |
| No demand deposits | Cannot accept demand deposits like banks (i.e., withdrawable on demand) |
| Credit services | Offer loans, hire purchase, leasing, microfinance, etc. |
| Investments | Engage in investments like stocks, bonds, and insurance |
| Financial inclusion | Reach underserved populations and sectors that banks may ignore |
How NBFCs Differ from Banks:
| Criteria | NBFCs | Banks |
|---|---|---|
| Demand Deposits | Not allowed | Allowed |
| Payment & Settlement | No cheque facility | Cheque facility |
| CRR/SLR Maintenance | Not required | Mandatory |
| Regulation | RBI (limited) | RBI (extensive) |
| Coverage under DICGC | Not covered | Covered (up to ₹5 lakh per depositor) |
Liquidity & Market Conditions
- Liquidity remains abundant due to accommodative rate policy and surplus overnight balances
- Financial markets have been stable; nonetheless, RBI warns against complacency and excessive risk‐taking
Emerging Risks
- External threats: geopolitical tensions, global trade disruptions, sharp capital flow reversals
- Weather-related risks: environmental shocks could impact agriculture, inflation, and financial stress
- Domestic vulnerabilities: rising household debt (~41.9% of GDP), stress in credit cards, personal loans & microfinance sectors
Outlook & Policy Implications
- Overall stability and resilience make India well‐positioned to absorb future economic shocks.
- RBI stresses the critical role of financial stability as central to sustainable growth—on par with price stability.
- Vigilance required on weak domestic pockets (NBFCs, retail credit), shifting global dynamics, and infrastructure liabilities.
