As the global economy navigates a period of significant uncertainty, India stands out as a beacon of stability and growth. The Reserve Bank of India’s latest Financial Stability Report (FSR), released in June 2025, paints a detailed picture of an economy that is not only expanding but doing so with remarkable strength across its financial sectors. While external risks from geopolitical tensions and trade disruptions are mounting, India’s robust domestic demand, cooling inflation, and a well-capitalised banking system provide a powerful shield, making it the world’s fastest-growing major economy.

This deep dive explores the key findings of the FSR, providing a comprehensive overview of the Indian economy’s performance, the resilience of its financial institutions, and the outlook for the future.

The Global Context: An Environment of Elevated Risk

The FSR begins by acknowledging that the global macroeconomic environment has become increasingly challenging. Near-term risks to financial stability have risen, driven by several key factors:

• Policy and Trade Uncertainty: The announcement of large tariffs by the US administration in April 2025 has set off a wave of trade policy uncertainty, testing the resilience of the global economy. This has led international agencies, including the IMF, the OECD, and the World Bank, to revise their global growth forecasts downwards. The IMF, for instance, projects global growth to decelerate to 2.8% in 2025.
• Soaring Public Debt: A recurring concern highlighted in the report is the issue of rising global public debt. According to IMF projections, global public debt is expected to reach 100% of GDP by the end of the decade, creating significant vulnerabilities, especially in an environment of slowing growth.
• Volatile Financial Markets: Global financial markets remain volatile and are highly sensitive to economic and geopolitical developments. The market turmoil in April 2025 served as a stark reminder of how sudden shocks can amplify existing vulnerabilities, such as stretched asset valuations in several markets.

The Indian Economy: A Story of Domestic Strength

Despite the turbulent global backdrop, the Indian economy continues to be a primary driver of global growth, underpinned by sound fundamentals and prudent policies.

Robust GDP Growth

India’s economic momentum is primarily powered by strong domestic demand, which keeps it relatively insulated from global headwinds.

• Growth Projections: The Indian economy grew at a healthy pace of 6.5 per cent in 2024-25. The Reserve Bank of India expects this strong performance to continue, projecting the same growth rate for the 2025-26 fiscal year. This is supported by buoyant rural demand, a revival in urban consumption, and rising investment activity.
• Economic Expansion: Over the past decade, India’s economic size has nearly tripled. The GDP at current prices, which stood at ₹106.57 lakh crore in 2014-15, is expected to reach ₹331.03 lakh crore in 2024-25.

Inflation Firmly Under Control

A key pillar of India’s macroeconomic stability is the steady decline in inflation.

• Record Lows: In May 2025, headline consumer price index (CPI) inflation recorded a six-year low of 2.8 per cent. This easing trend gives the RBI greater confidence in the durable alignment of inflation with its medium-term target of 4 per cent.
• Favourable Outlook: The report notes that the outlook for food inflation remains favourable due to robust crop production. Additionally, the risk of imported inflation remains low, as a global growth slowdown is likely to soften commodity and crude oil prices.

Financial Sector Resilience: The Core of India’s Stability

• The FSR provides a thorough assessment of India’s financial institutions, concluding that the system is resilient and bolstered by healthy balance sheets of banks, non-banks, and corporates.

A. Scheduled Commercial Banks (SCBs): A Picture of Unprecedented Strength

The Indian banking sector is described as robust, with capital buffers at a record high and non-performing loans at a multi-decadal low.

• Capital Adequacy: The Capital to Risk-Weighted Assets Ratio (CRAR) of SCBs, a key indicator of a bank’s ability to absorb losses, increased to a record high of 17.3% in March 2025. The high-quality

Common Equity Tier 1 (CET1) capital ratio also rose to 14.7%, indicating a strong and healthy capital base.

• Asset Quality: The asset quality of banks has shown remarkable improvement.

1. The Gross Non-Performing Asset (GNPA) ratio has declined to a multi-decadal low of 2.3%.
2. The Net Non-Performing Asset (NNPA) ratio fell to just 0.5%.
3. The Provisioning Coverage Ratio (PCR), which indicates the funds set aside for bad loans, was strong at 76.3% as of March 2025.

• Macro Stress Tests: To gauge their resilience, banks were subjected to macro stress tests. The results reaffirm their strength, showing that even under a severe geopolitical risk scenario, the system-level CRAR would remain at 14.2%, well above the regulatory minimum of 9%. No bank would breach the minimum CET1 capital requirement under any of the adverse scenarios.

B. NBFCs and Other Financial Institutions

The resilience extends beyond banks to other key parts of the financial system.

• Non-Banking Financial Companies (NBFCs): The NBFC sector remains healthy with strong capital buffers, reflected in a system-level CRAR of 25.8% in March 2025. While loan growth moderated following RBI’s measures to increase risk weights on certain consumer credit segments, the sector is well-positioned to support economic growth.
• Urban Cooperative Banks (UCBs): The capital position of UCBs has also strengthened, with their CRAR rising to 18.0% in March 2025.
• Insurance Sector: The insurance sector remains robust, with the aggregate solvency ratio for both life (204%) and non-life (166%) insurers remaining well above the minimum prescribed threshold of 150% as of December 2024.

External Sector and Key Regulatory Initiatives

India’s strong engagement with the global economy is managed from a position of strength, supported by proactive regulatory measures.

• A Strong External Cushion: Foreign exchange reserves stood at a robust US$ 697.9 billion as of June 20, 2025, sufficient to cover more than 11 months of merchandise imports. The Current Account Deficit (CAD) was contained at a very manageable 0.6% of GDP in 2024-25 and even recorded a surplus in the final quarter.
• Key Regulatory Developments: Regulators have been proactive in strengthening the financial system. Key domestic initiatives by the RBI include:

1. Introducing the Special Rupee Vostro Account (SRVA) framework to promote the internationalisation of the Indian Rupee.
2. Amending the Liquidity Coverage Ratio (LCR) framework to address risks from the rapid digitalisation of finance.
3. Consolidating instructions on Digital Lending to enhance transparency and protect consumers.

Systemic Risk Outlook: Cautious but Confident

The RBI’s Systemic Risk Survey (SRS), conducted in May 2025, captures the perceptions of experts on the challenges ahead.

• Top Risks: Respondents identified geopolitical conflicts, capital outflows, and a reciprocal tariff/trade slowdown as the major near-term risks to India’s financial stability. Cyber risk and climate risk were also highlighted as high-risk concerns.
• Confidence in India: Despite worries about the global system, confidence in the Indian financial system remains exceptionally high. An overwhelming 92% of respondents expressed higher or similar levels of confidence. Furthermore, about 80% believe the prospects for the Indian banking sector will either improve or remain unchanged in the coming year.

The Reserve Bank of India (RBI) will hold an auction of two government bonds worth ₹25,000 crore on July 11, 2025. This auction will take place through RBI’s e-Kuber platform at its Mumbai office. These types of bonds are known as dated securities, and they help the government raise money for long-term needs.

Details of the Auction

According to the RBI, the auction will include,

• A new government bond (called Government Security or GS) worth ₹11,000 crore, maturing on July 14, 2032.
• A re-issue of an older bond—7.09% GS, maturing on November 25, 2074, worth ₹14,000 crore.

The government may also accept ₹2,000 crore more in extra subscriptions for each bond, depending on the demand. The settlement (payment and issue of bonds) will happen on July 14, 2025.

What Are Dated Securities?

A dated security is a kind of government bond with a fixed interest rate and a set maturity date. It pays interest every six months. These bonds are used by the government to borrow money for long-term needs.

A re-issued bond is an old bond that is sold again to raise more funds. It keeps the same interest rate and maturity date as the original.

Auction Method and Timings

The auction will be done using a multiple-price method. There are two kinds of bids,

• Non-competitive bids: Between 10:30 a.m. and 11:00 a.m.
• Competitive bids: Between 10:30 a.m. and 11:30 a.m.
• Results will be announced the same day, and successful bidders must make payments by July 14, 2025.

Special rules apply for Primary Dealers, who can submit bids for a part of the bonds between 9:00 a.m. and 9:30 a.m. on the auction day.

Who Can Participate and How

The minimum investment is ₹10,000, and more can be added in multiples of ₹10,000.

5% of the total amount is kept for small investors and institutions, who can take part through the Retail Direct portal.

These bonds will be open for “When Issued” trading from July 8 to July 11, 2025.

If any technical issues occur, physical bids will be accepted in special cases using prescribed forms.