Summary of this article
Global markets look strong but hide growing financial vulnerabilities
Indian banks show strong capital, liquidity and stress resilience
NBFCs and insurers remain stable despite external uncertainty
India’s financial system has been reported to be stable and robust by the Reserve Bank of India (RBI), backed by sound bank balance sheets, easy capital buffers and stable financial situations despite the increased global uncertainties. RBI mentioned this in the Financial Stability Report (FSR) of December 2025, released on December 31, 2025 .
The report reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council on risks to financial stability and the ability of the system to withstand fiscal shocks.
Global Risks Remain High
The report indicated that the global economy has demonstrated resilience over the past few months; fiscal support, front-loaded trade, and strong investment in artificial intelligence have contributed to the recovery. RBI, however, cautioned that downside risks remain significant. Public debt levels remained high along with a continuous uncertainty and the potentiality of a disorderly correction in financial markets in the future which may be a concern.
The global financial markets, which seem sound at the surface, are showing underlying vulnerabilities. The sudden spikes in the equity markets and other risk assets also hints at a warning signal of instability according to the report. The report also indicated the growing involvement of non-bank financial intermediaries, and their growing interconnectedness with banks, as a matter of concern. Another factor that was found to contribute to the vulnerability of financial systems across the globe was the increasing adoption of stablecoins.
Domestic Economy Shows Good Momentum
The report stated that the Indian economy is booming at a robust rate despite a challenging global backdrop. Strong domestic demand, low inflation levels and sound macroeconomic policies are aiding the growth. These have cushioned the economy against several external shocks affecting other economies around the globe.
According to RBI, the easy financial conditions and low volatility in the domestic financial markets have also added more resilience to the system. However, it also highlighted near-term risks arising from geopolitical developments and trade-related uncertainties, which could have spillover effects.
Banks are Well Capitalised
The report indicated that the health of scheduled commercial banks (SCBs) is healthy. Banks are still enjoying high levels of capital and liquidity reserves, as well as better quality of assets and high profitability. These have enabled them to absorb any possible shocks.
RBI has conducted macro stress tests which revealed that even in hypothetical adverse conditions, the banks would be in a position to absorb their losses. Banks were observed to hold a capital level that was far higher than the level required by regulation. Mutual funds (MFs) and clearing corporations also pre-qualified the resilience of the stress tests.
NBFCs and Insurers Remain Stable
The non-banking financial companies (NBFCs) also remain healthy with a good capital base, stable profits and quality assets. RBI has observed that even though NBFCs are more susceptible to market conditions than banks, they have a comfortable financial position.
The insurance industry also witnessed balance sheet resilience in the calendar year with the consolidated solvency ratio of insurers remaining above the minimum level of regulatory requirement. Notably, this implies that the industry is in a good position to fulfil its responsibilities even during stress.
Watchfulness Still Necessary
Although the general picture of financial stability is favorable, RBI underlined that attention still needs to be paid to certain factors. The report pointed out that the sustainability of financial stability will depend on proper risk management, timely policy actions, and co-ordination of the regulators. With the changing nature of the global risks, RBI indicated that it will keep on evaluating the areas of vulnerability and implement measures to ensure that the financial system remains stable.
