Reserve Bank of India Governor Sanjay Malhotra has expressed confidence in the Indian economy's growth prospects, projecting high growth driven by strong domestic fundamentals despite challenging global conditions. His assessment comes amid a volatile and unfavorable external environment that continues to pose risks to emerging economies worldwide.

Financial Stability Remains Core Priority

In his foreword to the latest edition of the RBI Financial Stability Report, Malhotra emphasized the central bank's unwavering commitment to financial stability. "Maintaining financial stability and strengthening the financial system remains our north star," he stated, underlining the institution's primary mandate.

The Governor outlined the comprehensive approach adopted by financial sector regulators, recognizing that financial stability extends beyond mere risk management. According to Malhotra, regulators understand that promoting innovation and growth, protecting consumers, and implementing a pragmatic approach to regulation and supervision are equally important objectives that improve overall financial system efficiency.

Economic Resilience and Growth Drivers

Malhotra highlighted the robust foundation supporting India's economic performance, noting several key strengths that underpin the country's resilience:

The Governor specifically identified strong domestic consumption and investment as the primary drivers expected to propel the economy to high growth rates. This domestic demand strength provides a crucial buffer against external headwinds and demonstrates the economy's increasing reliance on internal growth engines.

Strategic Approach to External Challenges

While projecting optimistic growth scenarios, Malhotra acknowledged the reality of near-term challenges stemming from external spillovers. The Governor emphasized the proactive stance being taken to address these potential risks, stating that authorities continue to build strong guardrails designed to safeguard both the economy and the financial system from potential shocks.

The RBI's approach reflects a balanced perspective that combines growth optimism with prudent risk management. Malhotra noted that the most important contribution policymakers can make is fostering a financial system that demonstrates three critical characteristics: robustness and resilience to shocks, efficiency in providing financial services, and promotion of responsible innovation.

Policy Framework and Future Outlook

The Governor's comments reflect the RBI's comprehensive policy framework that balances multiple objectives while maintaining financial stability as the cornerstone. The emphasis on responsible innovation suggests the central bank's recognition of the evolving financial landscape and the need to adapt regulatory approaches accordingly.

Malhotra's assessment underscores the confidence in India's economic fundamentals while maintaining a realistic view of global challenges. The combination of strong domestic drivers and robust policy frameworks positions the Indian economy to navigate external volatility while sustaining growth momentum through domestic consumption and investment activities.

The Indian banking sector demonstrated robust financial performance in FY25, marked by stronger profitability and significantly improved asset quality, according to the Reserve Bank of India's Report on Trend and Progress of Banking in India. Despite some moderation in margins and an increase in fraud-related amounts, the overall sector health showed marked improvement across key performance indicators.

Asset Quality Reaches Historic Highs

The banking sector achieved a significant milestone in asset quality management during FY25. The following table highlights the key improvements:

The Gross Non-Performing Assets ratio declining to 2.20% represents the lowest level achieved by the banking sector in multiple decades, indicating substantial progress in resolving legacy asset quality issues and improved lending practices.

Accelerated Stressed Asset Resolution

Banks significantly stepped up their efforts to clean balance sheets through increased sales to Asset Reconstruction Companies. The sector sold loans worth ₹16.19 lakh crore at book value to ARCs in FY25, compared to ₹10.25 lakh crore in the previous year. Private and foreign banks accounted for a significantly higher share of these ARC sales, demonstrating their proactive approach to asset quality management.

Non-Banking Financial Companies Performance

The NBFC sector maintained its growth trajectory during FY25, though with some moderation in profitability metrics:

Despite the marginal decline in net profit, NBFCs continued to demonstrate resilience with sustained asset and income growth, reflecting their important role in the broader financial ecosystem.

Housing Finance Companies Show Steady Progress

Housing Finance Companies reported encouraging performance indicators during FY25. The sector achieved steady improvement in profitability metrics while maintaining operational stability:

• Net Profit: ₹19,367.00 crore, representing an increase from previous levels
• Asset Growth: Remained largely stable throughout the period
• Profitability Trend: Consistent improvement across the sector

The HFC sector's performance reflects the continued demand for housing finance and effective business management practices adopted by these institutions.

Sector Outlook and Key Developments

The banking sector's performance in FY25 demonstrates significant progress in addressing structural challenges while maintaining growth momentum. The achievement of multi-decadal low GNPA ratios, combined with increased stressed asset resolution activities, indicates improved risk management practices and regulatory effectiveness. However, the sector continues to navigate challenges including margin pressures and rising fraud-related incidents, requiring continued vigilance and strategic management focus.