“The Indian economy is exhibiting steady growth, underpinned by solid macroeconomic fundamentals and strong domestic growth drivers,” the report said.
The strength of Scheduled Commercial Banks (SCBs) has been bolstered by robust profitability, declining non-performing assets and adequate capital and liquidity buffers. Return on assets (RoA) and return on equity (RoE) are at multi-decade highs while the gross non-performing asset (GNPA) ratio has fallen to a multi-year low, the report said.
Macro stress tests show that most banks have sufficient capital buffers against regulatory minimums even under adverse stress conditions. Stress tests also validate the resilience of mutual funds and clearing corporations. Non-banking financial companies (NBFCs) remain healthy with large capital buffers, strong interest margins and improving earnings and asset quality.
The report states that the stable solvency ratio of the insurance sector also remains above the minimum threshold. It also observes that the global economy and financial system remain resilient despite uncertainty.
While near-term risks have eased, vulnerabilities such as overvalued assets, high public debt, protracted geopolitical conflicts and risks from emerging technologies pose medium-term risks to financial stability.
The domestic financial system is demonstrating resilience, supported by healthy balance sheets of banks and non-banks, and strengthened by strong capital buffers, robust earnings and improving asset quality.
Vulnerabilities in the form of stretched equity valuations, strains in the microfinance and consumer credit segments and risks from external spillovers require close monitoring, the RBI report added.
Domestic regulatory initiatives continue to focus on strengthening the safety and resilience of the financial system. Efforts are focused on strengthening the resilience of financial intermediaries and market infrastructure, with an emphasis on cyber resilience, fraud prevention and consumer protection, the report said.
Global regulatory initiatives have focused on mitigating risks arising from technological advances, cyber security risks and third-party dependencies. Addressing weaknesses in non-bank financial intermediaries and cross-border payment systems is among the priorities, the report added.