RBI underlines India’s economic resilience

Though elevated economic and trade policy uncertainties are testing the resilience of the global

economy and the world’s financial system, the domestic economy, especially the financial

system, is in good shape and is a major driver of global growth, the Reserve Bank has said in its

financial stability report for the first half of the year.

“Despite an uncertain and challenging global economic backdrop, our economy remains a key

driver of global growth, underpinned by sound macroeconomic fundamentals and prudent

macroeconomic policies,” the biannual FSR released said yesterday.

However the report warns that if the tariff wars and other uncertainties lead to a 100 bps

slowdown in global growth, it can, pull down our growth by 30 bps.

The report blames the volatility in the global financial markets, especially core government

bond markets, to the shifting policy and geopolitical environments. Alongside, existing

vulnerabilities such as soaring public debt levels and elevated asset valuations have the

potential to amplify fresh shocks, the report warns.

On the other hand, the report says, “The domestic financial system is exhibiting resilience

fortified by healthy balance-sheets of banks and non-banks. Financial conditions have eased

supported by accommodative monetary policy and low volatility in financial markets. The

strength of the corporate balance sheets also lends support to overall macroeconomic

stability.”

On the health of the banking system, the FSR notes that, “the soundness and resilience of

commercial banks are bolstered by robust capital buffers, multi-decadal low non-performing

loans ratio and strong earnings.”

The stress tests affirm that most banks have adequate capital buffers relative to the regulatory

minimum even under adverse stress scenarios. Stress tests also validate the resilience of

mutual funds and clearing corporations. Similarly, non-banking financial companies remain

healthy with sizable capital buffers, robust earnings and improving asset quality.

Also, the consolidated solvency ratio of the insurance sector also remains above the minimum

threshold limit.

“Against this backdrop, near-term global financial stability risks have increased. The market

turbulence in April was a stark reminder of how existing vulnerabilities in the global financial

system are amplified by sudden shocks. Though financial markets have stabilised after this

episode, they remain volatile and highly sensitive to economic and geopolitical developments.

Globally, risks associated with elevated public debt and possibilities of further corrections in

asset prices remain high.”

“In this global milieu, our economy remains a key driver of global growth. Growth momentum is

buoyed by strong domestic growth drivers, sound macroeconomic fundamentals and prudent

policies. Nonetheless, external spillovers and weather-related events could pose downside risks

to growth. The outlook for inflation, on the other hand, is benign and there is greater

confidence in the durable alignment of inflation with the Reserve Bank’s target,” says the

governor.

The report projects real GDP growth at 6.5% in fiscal 2026, the same as in FY25, supported by

buoyant rural demand, revival in urban demand, an uptick in investment activity on the back of

above-average capacity utilisation, government’s continued thrust on capex and congenial

financial conditions.

In sum, the report presents a broadly positive outlook for the country’s financial sector

grounded in strong fundamentals, but mindful of evolving global and domestic risks.