RBI Financial Stability Report 2025: Economy Resilient, Banks Strong, But Risks Persist

The Reserve Bank of India (RBI) released its Financial Stability Report (FSR), December 2025, presenting a largely optimistic assessment of India’s financial system. The report highlights strong economic growth, improved bank asset quality, and adequate capital buffers, while simultaneously flagging emerging risks from unsecured lending, fintech exposure, external sector pressures, and stablecoins.

This report is crucial for understanding India’s macro-financial health, especially for UPSC aspirants, policymakers, economists, and investors.

Financial Stability Report 2025: Key Highlights

India’s Economy Remains Resilient

According to the RBI, India’s economy continues to grow at a robust pace, supported by strong domestic fundamentals.

• Real GDP Growth (FY 2025–26):

  • Q1: 7.8%

  • Q2: 8.2%

• Key growth drivers:

  • Strong private consumption

  • Sustained public capital expenditure

  • Low and stable inflation

  • Above-normal monsoon

  • Tax reforms and expansion of Digital Public Infrastructure (DPI)

Despite global geopolitical tensions and trade uncertainties, the RBI maintains a positive growth outlook for India.

Banking Sector: Strong Balance Sheets and Low NPAs

Asset Quality Improves to Multi-Decade Low

The health of Scheduled Commercial Banks (SCBs) has improved significantly.

• Gross Non-Performing Assets (GNPA):

  • 2.1% (September 2025) – lowest in decades

  • Projected to improve further to 1.9% by March 2027 (baseline scenario)

• Under stress scenarios:

  • GNPA could rise to 3.2% (moderate shock)

  • Up to 4.2% (severe shock)

This reflects the success of post-pandemic clean-up, recoveries, and prudent lending practices.

Capital Adequacy: Comfortable but Uneven

The RBI noted that banks continue to maintain strong capital buffers, though stress tests reveal vulnerabilities.

• Capital to Risk-Weighted Assets Ratio (CRAR):

  • Public Sector Banks: 16%

  • Private Sector Banks: 18.1%

• Aggregate CRAR:

  • 17.1% (Sept 2025) → 16.8% (March 2027) under baseline

  • May decline to around 14% under severe stress

Stress tests show higher capital depletion in public sector banks, with six banks (15% of banking assets) potentially breaching regulatory minimums under extreme scenarios.

Unsecured Loans: A Growing Concern

One of the biggest red flags in the Financial Stability Report is the surge in unsecured retail lending.

• 53.1% of retail loan slippages originate from unsecured loans

  • Personal loans

  • Credit cards

• GNPA ratio:

  • Unsecured retail loans: 1.8%

  • Overall retail loans: 1.1%

• Private sector banks:

  • 76% of slippages from unsecured loans

• Public sector banks:

  • Only 15.9%

The RBI cautioned that aggressive growth in unsecured credit could pose risks if economic conditions deteriorate.

Fintech Lending Under RBI Scanner

The report highlights rising risks from fintech-driven credit expansion.

• Over 70% of fintech loan portfolios are unsecured

• Majority of borrowers are below 35 years of age

• High impairment observed among borrowers with:

  • Loans from five or more lenders

• Fintech lending growth:

  • 36.1% year-on-year (Sept 2024–Sept 2025)

The RBI flagged concerns around over-leverage, weak credit assessment, and regulatory arbitrage in the fintech ecosystem.

Stablecoins and Crypto: Threat to Monetary Sovereignty

In a special section, the RBI issued a strong warning against the widespread adoption of stablecoins, especially foreign currency–denominated ones.

Key Risks Highlighted:

• Erosion of monetary sovereignty

• Weakening of monetary policy transmission

• Challenges in capital flow management

• Vulnerability to:

  • Confidence shocks

  • Money laundering

  • Terror financing

  • Weapons proliferation

The RBI reiterated that central bank money must remain the ultimate settlement asset, positioning Central Bank Digital Currency (CBDC) as a safer, regulated alternative.

Rupee Under Pressure from External Factors

The Financial Stability Report also examined external sector risks.

• The Indian Rupee depreciated against the US Dollar due to:

  • Deteriorating terms of trade

  • Higher effective US tariff rate on Indian exports

  • Slowing capital inflows

• This depreciation occurred despite a global weakening of the US Dollar, highlighting India-specific pressures.

Why the Financial Stability Report Matters

The RBI’s Financial Stability Report serves as an early warning system for the economy. While India’s financial system remains robust and resilient, rising risks from unsecured retail credit, fintech lending, crypto-assets, and global uncertainty require close regulatory vigilance.

Conclusion

The RBI Financial Stability Report 2025 underscores India’s strong macroeconomic fundamentals and a healthy banking sector, but it also sends a clear message: financial stability cannot be taken for granted. Prudent regulation, risk-aware lending, and strong institutional oversight will be critical to sustaining growth while safeguarding stability in the years ahead.

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