RBI releases the Financial Stability Report, June 2025

**Executive Summary** The Reserve Bank released the June 2025 Financial Stability Report (FSR) on June 30, 2025. The report reflects the collective assessment by the Sub-Committee of the Financial Stability and Development Council (FSDC) on the resilience of the Indian financial system and the risks to financial stability. **Key Points / Main Content** *Global Economy and Financial Markets* * Elevated economic and trade policy uncertainties are testing the resilience of the global economy and the financial system. * Financial markets remain volatile, especially core government bond markets, driven by policy shifts and geopolitical environment. Existing vulnerabilities such as soaring public debt levels and elevated asset valuations could amplify fresh shocks. *Indian Economy* * Despite a challenging global backdrop, the Indian economy remains a key driver of global growth, underpinned by sound macroeconomic fundamentals and prudent macroeconomic policies. * The domestic financial system exhibits resilience due to healthy balance sheets of banks and non-banks. Financial conditions have eased with accommodative monetary policy and low financial market volatility. *Banking Sector* * Scheduled commercial banks (SCBs) are sound and resilient due to robust capital buffers, low non-performing loans, and strong earnings. * Macro stress tests show most SCBs have adequate capital buffers relative to the regulatory minimum, even under adverse stress scenarios. Stress tests validate the resilience of mutual funds and clearing corporations. *Non-Banking Financial Sector* * Non-banking financial companies (NBFCs) remain healthy with sizable capital buffers, robust earnings, and improved asset quality. * The consolidated solvency ratio of the insurance sector remains above the minimum threshold limit. **Impact Analysis** **Stakeholder: Scheduled Commercial Banks (SCBs)** *Impact:* Confirms the soundness and resilience of SCBs and provides reassurance about their ability to withstand adverse economic conditions. *Action Required:* Maintain robust capital buffers and continue to improve asset quality. **Stakeholder: Non-Banking Financial Companies (NBFCs)** *Impact:* Demonstrates the health and stability of NBFCs, fostering confidence in the sector. *Action Required:* Maintain sizable capital buffers and focus on robust earnings and improving asset quality. **Stakeholder: Insurance Sector** *Impact:* Reinforces the stability of the insurance sector by highlighting the solvency ratio being above the minimum threshold limit. *Action Required:* Maintain adequate solvency ratios to ensure continued stability. **Stakeholder: Mutual Funds and Clearing Corporations** *Impact:* The results of macro stress tests validate the resilience of these entities, bolstering confidence in their operational capabilities under adverse conditions. *Action Required:* Ensure the continuation of robust operational capabilities under adverse conditions. **Stakeholder: Regulators** *Impact:* Provides an overview of the financial system's health and identifies potential risks. *Action Required:* Continue monitoring economic and trade policy uncertainties and financial market volatility.

Key Entities Referenced