External shock risks rise as geopolitics, AI reshape global economy; near-term outlook uncertain: RBI governor

However, it said the aggregate GNPA ratio of 46 banks may edge up from 1.8% in March 2026 to 1.9% by March 2028 under the baseline scenario. Under adverse scenarios, it may rise to 3.8% and 4.1%.

“The Indian economy and the financial system have demonstrated remarkable resilience despite facing external shocks of significant magnitude,” he said, adding that strong growth, low inflation, healthy balance sheets of financial and non-financial firms, as well as ample buffers have helped preserve macro-financial stability. “Nevertheless, we remain alert to evolving external and domestic risks, and are committed to further strengthening the guardrails that protect our economy and financial system from potential shocks,” he said.

‘Banks, NBFCs remain sound’

According to him, the report reaffirms the strength of the domestic financial system. “Banks and non-banking financial institutions remain sound, supported by strong capital and liquidity positions, healthy profitability, low levels of non-performing assets, and robust credit growth. Stress tests indicate that the financial institutions are well-positioned to withstand adverse shocks,” he said.

Malhotra said the global financial stability risks remain elevated. “Inflationary pressures may require major advanced economy central banks to maintain a hawkish policy stance, potentially tightening global financial conditions,” he said. Meanwhile, vulnerabilities associated with high public debt, bond market fragilities, stretched asset valuations, and the growing footprint of leveraged non-bank financial intermediaries could amplify the impact of future shocks, he said.

Despite ongoing conflicts and persistent supply chain disruptions, the global economy remained resilient — buoyed partly by optimism around potential AI-driven productivity gains, Malhotra said.

The governor said that the financial markets, notwithstanding the volatility posed by global uncertainties, have been functioning in an orderly manner. “The financial system remains a key source of strength and support for the real economy and India’s growth momentum,” he said.

Recognising the need to maintain public confidence in the financial system, he said that it requires more than just prudential soundness. Policies that promote fair conduct and improve customer experience are equally important. “Our objective, therefore, remains unchanged: we want to foster a financial system that is not only resilient and stable, but also efficient, inclusive, and dynamic — a system which supports businesses and households to participate and grow in a well-functioning economy,” Malhotra said.

Agriculture NPAs at 5.1%

According to the report, the annual slippage ratio steadily moderated over the last four financial years to 1.2% in 2025-26, driven by lower fresh accretions to impaired assets in PSU banks and private banks.

Credit quality improved across all broad economic sectors. Agriculture — despite improvement — continued to exhibit the highest GNPA ratio of 5.1% and accounted for the largest share in scheduled commercial banks’ (SCB) GNPAs at 37.2% in March 2026, the FSR said.

Within industry subsectors and personal loans category, asset quality broadly improved across all segments. The share of large borrowers in total credit of SCBs increased marginally to 44.5% as at end March 2026. However, their share in gross NPAs saw steady decline. Asset quality of large borrowers improved across bank groups, with the aggregate GNPA ratio declining sequentially to 1.2% as at end-March 2026 from 2.4% as at end-September 2024, it said.