The Reserve Bank of India (RBI) on Wednesday released the December 2025 edition of its Financial Stability Report (FSR), reaffirming that India’s financial system remains stable and resilient despite a challenging global context marked by uncertainty, heightened risks and outbreaks of market volatility.

The assessment is based on the collective views of the Financial Stability and Development Council Subcommittee (FSDC), which reviews systemic risks and vulnerabilities that could threaten financial stability.

In its global assessment, the RBI said the global economy has shown resilience in recent months, supported by fiscal stimulus, early business activity and strong investment momentum, particularly in areas linked to artificial intelligence. However, the central bank warned that risks to the outlook remain high. High levels of public debt in several economies, persistent geopolitical tensions and the possibility of sharp corrections in financial markets continue to pose downside risks.

The report noted that while global financial markets appear buoyant, deeper vulnerabilities are building beneath the surface. Strong rallies in equities and other risky assets, the growing dominance of non-bank financial intermediaries and their growing interconnection with the banking system have added to systemic fragilities. The expanding role of stablecoins was also cited as a potential source of risk in an already complex global financial landscape.

Against this uncertain external environment, the RBI said India’s macroeconomic fundamentals remain strong. The national economy continues to grow at a healthy pace, supported by resilient consumer demand, reduced inflationary pressures and a stable political framework. Prudent macroeconomic management and strong institutional supervision have helped to insulate the financial system from external shocks.

The central bank noted that domestic financial conditions remain favorable, with low market volatility and comfortable liquidity supporting the flow of credit. However, he warned that short-term risks persist, particularly due to global geopolitical developments, trade disruptions and changes in international financial conditions.

The report highlighted the continued strength of India’s banking sector. Scheduled Commercial Banks (SCBs) are well capitalized with strong capital adequacy and liquidity cushions, improving asset quality and sustained profitability. Macro stress tests conducted by the RBI indicate that banks are well equipped to withstand potential losses in severe but plausible adverse scenarios, while maintaining capital levels well above regulatory thresholds. Stress tests also pointed to the resilience of mutual funds and clearing corporations.

Non-banking financial companies (NBFCs) were also found to be in a stable position. The RBI said NBFCs continue to benefit from adequate capital buffers, stable earnings performance and improving asset quality, strengthening their ability to absorb shocks. In the same way, the insurance sector remains on a solid basis, with the consolidated solvency ratio comfortably above the minimum regulatory requirement.

Overall, the latest RBI Financial Stability Report underscores the strength of India’s financial system at a time of heightened global uncertainty, while underscoring the need for constant vigilance as external and internal risks evolve.