RBI's Financial Stability Report Overview

The Reserve Bank of India's (RBI) Financial Stability Report highlights both resilience and concerns in India's financial system amidst global challenges.

Impact of Global Factors

• Domestic demand insulates India's growth from global issues, but the financial system could be affected by external spillovers.
• Global trade disputes and geopolitical tensions might negatively impact domestic growth and bank credit demand.
• Increased investor risk aversion could trigger corrections in domestic equity markets.

Financial System Stress

• There's a slight increase in the financial system stress indicator due to global spillovers.
• A 100 basis points global growth slowdown could reduce India's growth by 30 bps.

Economic Resilience

• RBI projects a 6.5% GDP growth for the current year, maintaining last year's growth rate.
• The financial system shows resilience due to healthy balance sheets of banks and non-banks.

Inflation and Banking Sector

• Food inflation outlook remains favorable; low risk of imported inflation due to expected global growth slowdown.
• Geopolitical tensions in the Middle East increase uncertainty, but headline inflation might undershoot the target.
• Scheduled commercial banks show improvement in asset quality with GNPA and NNPA ratios at multi-decadal lows.

Stress Tests and Capital Adequacy

• Stress tests indicate that gross NPA ratios might rise under different scenarios, but capital adequacy remains above the regulatory minimum of 9%.

External Sector Resilience

• The external sector significantly contributes to India's macroeconomic and financial stability.
• Current account deficit (CAD) at 0.6% of GDP for 2024-25 is considered manageable.