RBI releases the Financial Stability Report,

June 2025
Reserve Bank released the June 2025 issue of the Financial Stability Report (FSR), which reflects
the collective assessment of the Sub-Committee of the Financial Stability and Development
Council (FSDC) on the resilience of the Indian financial system and risks to financial stability.
About FSR
 Global Economy
The global macroeconomic outlook has deteriorated amidst headwinds from Existing vulnerabilities - soaring public debt
persistent trade frictions, heightened policy uncertainty, and weak consumer levels, excessive risk taking in the non-banking
sentiment. Despite some easing in tariff tensions on prospects of trade deals, financial sector and elevated asset valuations
the economic outlook remains fragile amidst elevated trade uncertainty. have the potential to amplify fresh shocks.

The estimates of effective tariff rate on US merchandise imports have reached their highest level since 1938.
(As per the OECD’s Economic Outlook Report, June 2025, the new tariffs introduced by the US this year up to mid-May 2025
are estimated to have raised the effective tariff rate on US merchandise imports to 15.4%, from just over 2% in 2024. )

Citing escalation in trade tensions and

elevated policy uncertainty, the IMF in its
April 2025 World Economic Outlook has
revised global growth projection
downwards –

Global Real GDP growth historical average

(2000-2019) is 3.7%, while global inflation
historical average (2000-2019) is 3.8%. Red
dotted lines represent projections.
 Global Economy

The OECD, in its Economic Outlook Disinflation momentum has

released in June 2025, has revised the stalled, especially in AEs,
global GDP growth forecast for 2025 to where inflation generally
2.9%. remains above the central
bank targets.
Similarly, the World Bank, in its June 2025
Global Economic Prospects (GEP),
projected global GDP growth to decelerate
from 3.3% in 2024 to 2.9% in 2025.

Moreover, the persistence of elevated

trade frictions is expected to lower trade
volumes going forward, with the
deceleration disproportionately
concentrated in the US, China, and their
closely linked regional trading partners.
Global Economy

The interest rate-growth rate differential is becoming increasingly

adverse for debt sustainability in both the US and Europe. The rating
agency Moody’s decision to downgrade the sovereign rating of the US
citing sharp increase in debt, widening fiscal deficit and rising interest
payments reflects this growing risk.
 Domestic Economy
The Indian economy, supported by strong macroeconomic fundamentals,
remained the fastest growing major economy in the world during 2024-25.
Moreover, as India’s growth is largely dependent on domestic demand, the
impact of external shocks remained limited.

Domestic inflation has been steadily declining with

The RBI has projected the real GDP to grow at 6.5% in
the headline consumer price index (CPI) inflation
2025-26, same as in 2024-25.
recording a six-year low of 2.8% in May 2025.

The headwinds from protracted geopolitical tensions, elevated uncertainty and

trade disruptions, and weather-related uncertainty pose downside risks to
growth. Moreover, deceleration in global growth will act as a drag on domestic
output. It is estimated that a 100 bps slowdown in global growth can, ceteris
paribus, pull down India’s growth by 30 bps.
 Domestic Economy – Fiscal Front
On the fiscal front, India’s public debt levels, primary deficit and However, India’s fiscal position and credibility
share of interest payment in government revenue have remained has enhanced significantly in recent years on
relatively on the higher side compared to peer EMEs. account of ongoing fiscal consolidation,
improvement in the quality of expenditure
and earmarking of debt-to-GDP as the nominal
anchor for the central government’s fiscal
policy. In addition, the government debt is
predominantly rupee-denominated.
 Domestic Economy – External Sector
The resilience of the external sector has been a key
contributing factor to India’s macroeconomic and
financial stability. Current account deficit (CAD) at 0.6%
of GDP during 2024-25 remains eminently manageable,
supported by sustained buoyancy in services exports
and remittances. Current account balance turned into
a surplus of 1.3% of GDP in Q4:2024-25.
 Domestic Financial Markets
The foreign exchange market witnessed bouts of volatility even as the USD/INR
Furthermore, India’s weightage in
exchange rate recorded sharp two-way movements during January-May 2025. The
the MSCI Emerging Markets (EM)
pace of rupee depreciation accelerated in late 2024 and continued till February 2025.
Index has remained steady at
In March and April, however, it appreciated supported by the broad-based weakness
18.5% as at end-March 2025
of the USD and relatively better economic outlook for India vis-à-vis other economies

Resource mobilisation through capital markets grew by

32.9% to ₹15.7 lakh crore in 2024-25. Debt markets had
the dominant share (63.5%) in resource mobilisation, of
which 99.2% was raised through listed private
placements. Equity markets accounted for 27.4% of
total resource mobilisation.

The RBI has injected durable liquidity amounting to

about ₹9.5 lakh crore through suite of liquidity
measures (open market operation purchases, buy-sell
In the debt market, corporate bond net outstanding rose to swaps and term variable rate repos) since January 2025,
₹53.6 lakh crore as at end March 2025 with the highest ever which led to system liquidity transitioning from deficit to
fresh issuance of ₹9.9 lakh crore during 2024-25. surplus at end-March 2025
 Domestic Financial Markets
As on end-December 2024, India’s household debt at 41.9% of GDP (at current market At an aggregate level, the per
prices) was relatively low compared to other EMEs. capita debt of individual
borrowers has grown from ₹3.9
Among broad categories of household debt, non-housing retail loans, which are lakh in March 2023 to ₹4.8 lakh
mostly used for consumption purposes (Includes personal loans, credit cards, in March 2025. The rise in per
consumer durable loans and other personal loans), formed 54.9% of total household capita debt has been mainly led
debt as of March 2025 and 25.7% of disposable income as of March 2024 by the higher-rated borrowers.

Housing loans, on the other hand,

formed 29.0% of household debt.

Incremental growth has been mainly

driven by the existing borrowers who
are availing additional loans, and
their share has increased to more
than a third of the housing loans
sanctioned in March 2025.
Share of borrower accounts with LTV
ratios greater than 70% is also rising.
Domestic Financial Markets
Within the MSME sector, however, credit to the micro enterprises,
which formed 49.0% of total credit to the MSME sector, witnessed
slower incremental growth in 2024-25 compared to small and
medium enterprises.
In terms of amount outstanding, the share of sub-prime borrowers
in the MSME portfolio of the SCBs has decreased from 33.5% in
June 2022 to 23.3% in March 2025.

The assets under management (AUM) of the domestic mutual funds

industry continued to grow and reached a record high of ₹72.2 lakh
crore in May 2025.
 Scheduled Commercial Banks (SCBs) – Deposit Growth
SCBs’ aggregate deposits grew at 10.7% (y-o-y) during 2024-25, notwithstanding a
deceleration in respect of private sector banks (PVBs) and foreign banks (FBs).

Growth in term deposits continued to outpace that in current and savings account
deposits. As on June 13, 2025, SCBs’ y-o-y deposits growth stood at 10.5%
 Scheduled Commercial Banks (SCBs) – Credit Growth
SCBs’ credit growth decelerated in 2024-25
across bank groups

Credit growth of public sector banks (PSBs)

outpaced that of PVBs during the year, after
more than a decade.
As on June 13, 2025, y-o-y credit growth of
SCBs moderated to 9.6%.
Personal loans and services loans continued
to remain the top two contributors to the
overall credit growth of SCBs
 Scheduled Commercial Banks (SCBs) – Asset Quality
SCBs continued to record improvement in their asset
quality, with the GNPA ratio and NNPA ratio declining to
multi-decadal lows of 2.3% and 0.5%, respectively

Agriculture sector continued to record the highest GNPA

ratio and was the major contributor to the overall stock of
GNPA.

Declined from 3.8% in September

2023 to 1.9% in March 2025

A large borrower is defined as one who has aggregate fund-

based and non-fund-based exposure of ₹5 crore and above
to any single SCB. This analysis is based on SCBs’ global
operations.
 Scheduled Commercial Banks (SCBs) – Capital Adequacy
As of March 2025, the capital to risk weighted assets ratio (CRAR) of SCBs
increased to a record high of 17.3%. All bank groups reported higher CRAR in
March 2025, compared to their September 2024 positions.

Tier I leverage ratio is the ratio of Tier I capital to total exposure.

Scheduled Commercial Banks (SCBs) – Earnings and Profitability
The profitability of SCBs remained strong in 2024-25, with
profit after tax (PAT) increasing by 16.9% (y-o-y). PAT of PSBs
recorded a robust growth of 31.8%, compared to much lower
growth (9.2%) for PVBs. PSBs’ higher profitability was
primarily driven by a rise in their other operating income. On
the other hand, higher growth in operating expenses was the
key contributor to the relatively lower profitability of PVBs
Scheduled Commercial Banks (SCBs) – Macro Stress Tests
Adverse Scenario 1 (Geopolitical risk scenario): This
scenario assumes a volatile global environment with
heightened geopolitical risks and escalation of global
financial market volatility. Supply chain disruptions
adversely affect the commodity prices leading to rise in
domestic inflation.

Adverse Scenario 2 (Global growth slowdown

scenario): This scenario assumes a synchronised sharp
growth slowdown in key global economies. Spillovers
through trade and financial channels as well as market
fragmentation dent domestic GDP growth.
Scheduled Commercial Banks (SCBs) – Macro Stress Tests
Primary (Urban) Cooperative Banks (UCBs)
Non-Banking Financial Companies (NBFCs)

Credit growth weakened across

all major sectors excluding
services and 'others', in
H2:2024- 25. The credit in
agriculture sector contracted.
Microfinance/SHG loans within
the retail advances category has
contracted in March 2025. Gold
loans, on the other hand, have
clocked rapid growth since
September 2023
Non-Banking Financial Companies (NBFCs)

System level stress test under a baseline

and two stress scenarios was conducted on
a sample of 158 NBFCs over a one-year
horizon for assessing the resilience of NBFC
sector to credit risk shocks.

Under the baseline scenario, the system

level GNPA ratio of the sample NBFCs may
rise from 2.9% in March 2025 to 3.3
percent in March 2026.

Consequently, their aggregate CRAR may

dip to 21.4% in March 2026 from 23.4% in
March 2025
 Mutual Funds and Insurance Sector
The Securities and Exchange Board of India (SEBI) has
mandated that asset management companies (AMCs)
should carry out stress testing of all open-ended debt
schemes (except overnight schemes) every month to
evaluate the impact of various risk parameters (viz.,
interest rate risk, credit risk, liquidity risk) related to such
schemes on their net asset values (NAVs).
 Interconnectedness
The financial system can be visualised as a network where financial institutions act as
nodes and the bilateral exposures among them serve as links connecting these nodes. Inter-bank exposures stood at
These links could be in the form of loans to, investments in, or deposits with each 3.4% of the total assets of the
other, which act as a source of funding, liquidity, investment and risk diversification. banking system in March 2025

The total outstanding bilateral exposures among the select 229 entities in the Indian
financial system expanded at a growth rate of 19.6% in March 2025.
 Contagion Analysis
Contagion analysis uses network technology to estimate the systemic
importance of different financial institutions. The failure of a bank due to
solvency and / or liquidity losses could lead to contagion impact on the banking
system along with the financial system.

A contagion analysis of the banking network as at the end-March 2025 position

indicated that the hypothetical failure of the bank with the maximum capacity
to cause contagion losses would cause a solvency loss of 3.4% of total Tier 1
capital of SCBs and liquidity loss of 0.3% of total HQLA of the banking system
In response to growing economic uncertainty and structural shifts in the global
financial landscape, regulators remain committed to enhance the resilience of
the global financial system. Policymakers and global standard-setting bodies are
advancing measures to strengthen the system’s resilience to complex
securitisation structures, rapid technological changes, rising cyber threats and
escalating climate-related risks. Since the December 2024 issue of Financial
Stability Report, several regulatory initiatives have been undertaken in key areas
including cyber security, cross-border payments, and climate-related risks.
 Domestic Regulatory Initiatives
Reserve Bank of India
Reserve Bank of India Reserve Bank of India
(Forward Contracts in Introduction of Specialised
(Project Finance) (Digital Lending
Government Securities) Investment Funds
Directions, 2025 Directions), 2025
Directions, 2025

Access to Negotiated
Prevention of Financial and
Dealing System – Order
Digital Payments Fraud
Matching (NDS-OM)

Amendments to Liquidity Safer Participation of Retail

Coverage Ratio (LCR) Investors in Algorithmic
Framework Trading