RBI Governor Highlights India’s Continued Role as a Key Driver of Global Economic Growth
India continues to emerge as a vital engine of global growth, even amidst rising global economic uncertainties, according to the Reserve Bank of India’s (RBI) financial stability report. RBI Governor Sanjay Malhotra emphasized the country’s strong domestic fundamentals and resilient financial system as key factors supporting this growth. He noted that while external shocks and climate-related risks pose challenges, inflation is expected to remain within the central bank’s target range, providing a stable economic outlook.
Decline in Non-Performing Assets
The RBI report, released on Monday, highlighted a significant decrease in the gross non-performing assets (NPAs) of the banking sector, which fell to a multi-decade low of 2.3% in March 2025, down from 2.6% in September 2024. This improvement is largely attributed to increased loan write-offs, which accounted for 31.8% of NPAs in the fiscal year 2025. However, the report also cautioned that GNPAs could rise to 2.6% by March 2027. Public sector banks are experiencing heightened stress, particularly in credit cards, where the GNPA ratio stands at 14.3%, compared to just 2.1% for private banks. The agriculture sector faces the highest sectoral GNPA at 6.1%. Notably, the GNPA ratio for large borrowers has halved to 1.9%, with none of the top 100 borrowers classified as NPAs, maintaining a stable loan share of 15.2%.
Global Economic Challenges
The report also addressed the broader global economic landscape, noting that growth forecasts from the International Monetary Fund (IMF), World Bank, and OECD have been revised downward due to increasing uncertainties. Malhotra pointed out that the introduction of significant tariffs by the U.S. administration in April has initiated a new phase in trade and economic policy. This, combined with ongoing geopolitical tensions, has heightened financial stability risks and contributed to increased market volatility. The turbulence observed in April served as a stark reminder of how vulnerabilities in the global financial system can be exacerbated by sudden shocks.
Resilience of India’s Financial System
Despite these global challenges, India’s financial system is showing signs of growing resilience. Malhotra noted that both banks and non-banking financial institutions are operating with strong capital buffers, low non-performing assets, and healthy profitability. Stress tests conducted by the RBI indicate that these institutions would remain stable even under adverse economic scenarios. The governor also highlighted the need for regulators to be vigilant, prudent, and agile in navigating the complexities posed by trade fragmentation, rapid technological disruption, climate change, and prolonged geopolitical tensions.
Commitment to Innovation and Safety
As India’s financial sector evolves, there is a clear focus on balancing innovation with safety. Malhotra reaffirmed the RBI’s commitment to protecting consumers, promoting competition, and fostering innovation within the financial landscape. This approach aims to ensure that the financial system not only supports economic growth but also adapts to the changing needs of the market while maintaining stability and security for all stakeholders involved.
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