In News:

The Reserve Bank of India (RBI) recently released the Financial Stability Report for June 2025.

What is the Financial Stability Report (FSR)?

• The Financial Stability Report (FSR) is a biannual publication by the Reserve Bank of India (RBI).
• It presents the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC-SC) regarding:
  • Resilience of the Indian financial system
  • Emerging systemic risks
  • Outlook for macro-financial stability

Key Highlights – FSR June 2025

Macroeconomic & Global Outlook

• India remains a key driver of global growth, supported by strong macroeconomic fundamentals and prudent policies.
• Risks to growth include:
  • Prolonged geopolitical tensions
  • Trade and supply chain disruptions
  • Weather-related uncertainties impacting agricultural output

Banking Sector Performance

• Gross Non-Performing Asset (GNPA) ratio:
  • Stands at 2.3% as of March 2025, a multi-decadal low
  • May rise modestly to 2.5% in baseline and 2.6% under adverse conditions by March 2027 (based on stress tests on 46 banks covering 98% of SCB assets)
• Capital Adequacy Ratios (CAR):
  • Remain well above regulatory thresholds across the sector
  • Even under severe stress scenarios, banks maintain adequate buffers — indicating robust financial health

Non-Banking Financial Companies (NBFCs)

• NBFCs are in good financial health with:
  • Strong capital buffers
  • Robust earnings
  • Improving asset quality
• Continued financial resilience contributes to the overall stability of the financial system

Domestic Demand and Inflation Outlook

• Growth remains domestically driven
• Food inflation outlook favorable:
  • Price moderation observed
  • Crop output at record levels, supporting price stability

Significance for Financial Policy

• The report signals that India’s financial institutions are resilient and well-equipped to absorb economic shocks
• RBI's stress-testing framework confirms systemic soundness
• Reinforces India's investor confidence, especially in volatile global conditions