Strongly positioned, country must shield against looming risks: RBI

Mumbai: The Reserve Bank of India (RBI) on Monday said near-term outlook for the Indian economy remains positive, with inflation at multi-year lows, but cautioned that global growth uncertainties, interconnectedness of banks and nonbanks, and rising cyber-enabled frauds demand continued vigilance. On the banking sector, RBI noted that the financial system remains resilient, supported by strong capital buffers and improving asset quality, though it expressed concerns over climate risk and misselling.

“The Indian financial system remained resilient during 2024-25 and 2025-26, despite formidable global headwinds, including geopolitical risks, trade policy uncertainty and financial market volatility,” said the central bank in its annual Trend and Progress Report published on Monday. “RBI remained watchful of the emerging risks and challenges to the financial sector.

It continued to support financial innovation and digital transformation, said the report.


Announcing the December monetary policy, RBI governor Sanjay Malhotra, too, had likened India’s current macroeconomics to a journey through a “rare goldilocks period,” with inflation below 1% and growth exceeding 8%. The capital adequacy ratio of all commercial banks stood at 17.2% end-September, well above the 11.5% mandated by RBI. Net profits rose 14.8% to Rs 4 lakh crore at end of March, while gross non-performing assets fell to a multi-decade low of 2.1% at endSeptember, from 2.2% in March.

Non-banking financial companies (NBFCs) also posted strong performance, aided by double-digit credit growth, improved asset quality and comfortable capital buffers.

LOW NPAS, HIGH BUFFERS
Combined capital adequacy ratio for finance companies was 24.9% at end-September, well above the 15% requirement, and net NPAs declined to 2.9% end of March, from 3.5% a year earlier.

RBI said banks and NBFCs have stayed strong, supporting growth and financial inclusion. “Going forward, balancing innovation with stability, supported by prudent regulation and supervision will be crucial for ensuring a resilient financial system,” it added. The regulator said its policies remain focused on reinforcing cybersecurity, mitigating frauds, enhancing customer protection, integrating climate risk awareness, and preserving financial stability as an overarching goal.

On consumer protection, RBI flagged rising complaints despite improved grievance mechanisms. “Misselling of financial products and services by regulated entities has significant consequences for both customers as well as the financial sector,” the report said, adding that harmonised instructions on advertising, marketing and recovery practices are planned.

RBI also plans to review existing rules on recovery agents and issue uniform guidelines for loan recovery practices.

CLIMATE RISKS
On climate risks, RBI warned that “both physical and transition – may affect credit, market, liquidity, and operational risks and pose material threats to financial stability.” It added that climate finance is “a national imperative and a collective responsibility and it requires coordination across regulators, institutions, governments, and global actors.”

The central bank said it plans to expand digital infrastructure, internationalise UPI and RuPay, and roll out guidelines for ethical use of artificial intelligence in financial services. On AI-related risks, RBI cautioned that poor explainability, algorithmic bias, and data privacy issues could lead to systemic errors in credit assessment.