The Indian economy and the financial system faces near-term risks from external uncertainties such as geopolitical and trade related. These factors could increase exchange rate volatility, dampen trade, reduce corporate earnings and lower foreign investment, said the RBI Financial Stability report.
A sharp correction in US equities could influence domestic equities and tighten financial conditions. However, the economy and financial system have strong buffers to withstand adverse shocks, it said.
In contrast, RBI said the Indian economy and the financial system remain robust and resilient supported by strong growth, benign inflation, healthy balance sheets of financial and non-financial firms, sizeable buffers and prudent policy reforms.
Despite a volatile and unfavourable external environment, the Indian economy is projected to register high growth, driven by strong domestic consumption and investment.
Nonetheless, RBI report said it recognise the near-term challenges from external spillovers and continue to build strong guardrails to safeguard the economy and the financial system from potential shocks.
The year 2025 was challenging as geopolitical conflicts, trade tensions, and persistent policy uncertainty cast a shadow over the global economy and the financial system.
Amidst these developments, the world economy has proven to be more resilient than anticipated and the financial system has remained steady.
The outlook for 2026 and beyond, however, is shrouded in uncertainty as the contours of policies that are reshaping the global economic landscape remain fluid and untested.
The global financial system in this challenging backdrop remains vulnerable to stretched valuations of risk assets, expanding public debt and growing interconnectedness among banks and non-bank financial institutions (NBFIs).
Alongside, the financial landscape is evolving rapidly, driven by profound technological advances and the continued rise of non-bank financial intermediation. While they bring immense opportunities, they are also adding new layers of risks, such as the rise of stablecoins and private credit, said the report.
Published on December 31, 2025
