‘Economy growing at robust pace & banking sector remains sound’

Mumbai: India’s economy is expanding at a robust pace, supported by strong domestic demand, low inflation and healthy bank balance sheets, according to the Reserve Bank of India’s Financial Stability Report (FSR) released on Wednesday.

The December 2025 FSR said the domestic financial system remains resilient, underpinned by strong balance sheets, easy financial conditions and subdued financial market volatility.

However, it cautioned that near-term risks persist from external uncertainties, including geopolitical and trade-related developments.

The report noted that scheduled commercial banks (SCBs) continue to be in sound health, with strong capital and liquidity buffers, improved asset quality and robust profitability. Macro stress tests indicated that banks are well placed to absorb losses under adverse scenarios while maintaining capital well above regulatory minimums. Stress tests also affirmed the resilience of mutual funds and clearing corporations.

Under a baseline scenario, the gross non-performing assets (GNPA) ratio of banks is projected to decline further to 1.9 per cent by March 2027 from a multi-decade low of 2.1 per cent recorded in September 2025. In adverse scenarios, the GNPA ratio could rise to 3.2 per cent and 4.2 per cent, the RBI said.

Capital adequacy remains comfortable, with the capital to risk-weighted assets ratio at 16 per cent for public sector banks and 18.1 per cent for private banks as of September 2025, enabling lenders to withstand economic shocks.

On growth, the RBI said real GDP exceeded expectations in Q1 and Q2 of 2025-26, expanding by 7.8 per cent and 8.2 per cent, respectively, driven by strong private consumption and public investment.

The outlook remains positive, aided by low inflation, favourable monsoons, tax reforms and expanding digital public infrastructure.