RBI Report on Indian Financial System 2025: Strengthening Stability Amid Global Uncertainty
SDG 8: Decent Work and Economic Growth | SDG 9: Industry, Innovation, and Infrastructure | SDG 17: Partnerships for the Goals
Ministry of Finance | Financial Stability and Development Council (FSDC)
The RBI Financial Stability Report (December 2025) presents a comprehensive assessment of the Indian financial system’s resilience during a year defined by geopolitical conflicts, trade tensions, and fiscal strains in advanced economies. Supported by strong domestic consumption and investment, the Indian economy remains a “bright spot,” with the domestic financial system exhibiting institutional soundness and systemic resilience.
Key stability metrics and sector-specific performance include:
Asset Quality Milestones: The Gross Non-Performing Asset (GNPA) ratio of Scheduled Commercial Banks (SCBs) fell to a multi-decadal low of 2.2% at end-September 2025. The Net NPA ratio stood at a record low of 0.5%, reflecting rigorous credit discipline and high provisioning.
Capital & Liquidity Fortress: SCBs are exceptionally well-capitalized with a Capital to Risk-Weighted Assets Ratio (CRAR) of 17.2% and a common equity tier 1 (CET1) ratio of 14.8%. Liquidity remains comfortable with a Liquidity Coverage Ratio (LCR) of 131.7%.
NBFC Sector Robustness: Non-Banking Financial Companies (NBFCs) maintained strong capital buffers with a CRAR of 24.0%. While credit growth has steadied, the sector faces potential risks from rising reliance on external funding and exchange rate volatility.
Sectoral Credit Dynamics: Bank credit growth remained steady at 11.0%. MSME credit rose sharply by 20.6%, while personal loan growth showed deceleration following countercyclical regulatory measures to manage unsecured lending.
Fintech & Digital Shift: Fintech firms registered a robust credit growth of 36.1%, largely driven by personal loans to younger borrowers (under 35), though impairment in small-ticket loans remains an area of vigilance.
Ethical AI Integration: To manage the rapid adoption of technology, the RBI has operationalized the FREE-AI framework, establishing national standards for the responsible and ethical use of artificial intelligence in financial services.
Cooperative & Insurance Sectors: Urban Cooperative Banks (UCBs) show stable profitability despite NIM softening. The Insurance sector maintains a massive ₹74.4 lakh crore AUM, with solvency ratios (2.15 for life insurers) significantly exceeding the 1.50 regulatory threshold.
Market Resilience: Despite ₹1.6 lakh crore in FPI outflows, domestic equity markets were stabilized by ₹7.4 lakh crore in DII inflows, reflecting a structural shift toward domestic-led market depth.
Interconnectedness: Contagion analysis suggests that even the failure of a major NBFC or HFC would have limited systemic impact, with no bank breaching regulatory capital requirements due to strong solvency buffers.
What is the Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI)? It is a pioneering regulatory framework introduced by the RBI in 2025 to govern the deployment of AI in the financial sector. The framework establishes clear guidelines for financial institutions to ensure that AI-driven credit scoring and customer service models are transparent, accountable, and free from algorithmic bias, thereby protecting consumers while fostering responsible technological innovation.
Policy Relevance
The 2025 report validates the effectiveness of India’s macro-prudential policy framework, which has successfully decoupled domestic stability from global market volatility and “stretched” valuations in advanced economies. A major policy shift identified is the transition toward risk-based supervision and the fundamental reorganization of over 9,000 regulatory instructions into 244 Master Directions to reduce the compliance burden for MSMEs. Furthermore, the RBI’s strong advocacy for Central Bank Digital Currencies (CBDCs) over private stablecoins aims to preserve “monetary sovereignty” and ensure the “singleness of money” in an increasingly digitalized global economy. A critical policy shift is the launch of the FREE-AI framework to ensure ethical AI use in credit scoring, alongside a focus on strengthening domestic reinsurance to reduce reliance on global risk markets.
Follow the full report here: RBI Financial Stability Report December 2025