Amid uncertain and challenging global economic conditions, the Indian economy is expected to show robust growth, supported by resilient domestic demand, low inflation and prudent macroeconomic policies, Reserve Bank of India (RBI) Governor Sanjay Malhotra said on Wednesday.
However, geopolitical and trade-related uncertainties pose near-term risks, Malhotra said.
“Despite a volatile and unfavourable external environment, the Indian economy is projected to register high growth, driven by strong domestic consumption and investment,” Malhotra said in his foreword to the December 2025 edition of the Financial Stability Report (FSR), released on Wednesday..
“Nonetheless, we 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,” he said.
Malhotra said that 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. Amid these developments, he said, 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 governor said.
In this challenging backdrop, the global financial system 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, he added.
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“While they bring immense opportunities, they are also adding new layers of risks, such as the rise of stablecoins and private credit,” Malhotra noted.
The domestic financial system, Malhotra said, remains stable in terms of institutional soundness and systemic resilience. Banks and NBFIs remain healthy, bolstered by strong capital and liquidity buffers, robust earnings and improved asset quality. Financial markets, however, remain susceptible to global spillovers, he said.
“Maintaining financial stability and strengthening the financial system remains our north star,” the governor said, underlining that stability is not an end in itself.
“Promoting innovation and growth, protecting consumers, and a pragmatic approach to regulation and supervision that improves financial system efficiency are equally important,” he stated.
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These objectives are mutually reinforcing and vital for increasing productivity and long-term economic growth. The most important contribution the policymakers can make is to foster a financial system that is robust and resilient to shocks, efficient in providing financial services and promotes responsible innovation, the RBI governor said.
