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India's financial system remains stable and well-prepared to withstand global uncertainties, according to the Financial Stability Report published in the RBI July Bulletin. The report notes that the global financial system has remained resilient despite repeated shocks, including the recent conflict in West Asia. Financial markets have stayed largely stable, supported by moderate oil prices, strong corporate earnings, investment in artificial intelligence (AI), and favourable financial conditions. However, risks continue to persist due to geopolitical tensions, supply chain disruptions, high public debt, elevated asset valuations, and vulnerabilities in non-bank financial institutions. For India, the RBI said the economy remains exposed to global developments, especially any sharp rise in oil prices, exchange rate volatility, or correction in global equity markets. Even so, India's strong macroeconomic fundamentals, healthy foreign capital inflows, and resilient financial sector provide important buffers against external shocks. The report adds that recent policy measures by the Government and the Reserve Bank have further strengthened confidence in the economy. The banking sector continues to remain on a strong footing. Scheduled commercial banks are backed by robust capital and liquidity buffers, while asset quality has improved with non-performing assets falling to multi-decade lows. Credit and deposit growth also picked up during the second half of 2025-26. RBI stress tests indicate that banks are well-equipped to absorb adverse shocks without breaching regulatory capital requirements. Urban co-operative banks and non-banking financial companies (NBFCs) have also strengthened their balance sheets through better asset quality, adequate capitalisation, and healthy profitability. Stress tests show that the overall financial sector remains resilient, although a few individual entities may face pressure under severe stress scenarios. The insurance sector and mutual funds also remain stable. The report highlights that regulators are focusing on strengthening financial stability through better supervision, customer protection, financial inclusion, stronger credit flow, and the responsible use of technology. While increasing interconnectedness across financial institutions requires close monitoring, the RBI believes India's financial system remains resilient and capable of supporting sustained economic growth. Powered by Capital Market - Live News
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