RBI Financial Stability Report

Syllabus: GS3/ Economy

Context

• The Reserve Bank of India’s December 2025 Financial Stability Report (FSR) assesses systemic risks to India’s financial sector and evaluates the resilience of banks amid domestic strength and global uncertainties.

Key highlights of the report

• Growth outlook remains positive: The RBI noted that real GDP growth surprised on the upside in the first two quarters of FY 2025-26, registering 7.8% in Q1 and 8.2% in Q2.
  • Growth was supported by strong private consumption and public investment.
• Improvement in Banks’ Asset Quality: The asset quality of Scheduled Commercial Banks (SCBs) has improved further. The Gross Non-Performing Assets (GNPA) ratio declined to 2.1% in September 2025.
  • Strong recoveries, prudent lending practices, and better risk management have supported this improvement.
• Capital buffers remain adequate: The capital to risk-weighted assets ratio (CRAR) remained strong as of September 2025, with public sector banks at 16% and private sector banks at 18.1%. 
• Unsecured Loans Emerging as a Key Vulnerability: Unsecured loans accounted for 53.1% of total retail loan slippages. Unsecured loans contributed nearly 76% of slippages for private banks, compared with 15.9% for public sector banks.
• Fintech Lending: The RBI flagged elevated impairment among borrowers who have taken unsecured loans from five or more lenders, highlighting the role of fintech firms.
  • Over 70% of fintech loan portfolios consist of unsecured loans.
• Stablecoins risks to monetary sovereignty: The RBI reiterated concerns that stablecoins could undermine central banks’ ability to regulate money supply and financial stability.
  • The risks posed by stablecoins, especially those denominated in foreign currencies, could erode monetary sovereignty and weaken monetary policy transmission.
• Rupee Depreciation: The rupee depreciated against the US dollar due to falling terms of trade, high tariffs and a slowdown in capital flows. 

Source: TOI