The Reserve Bank on Tuesday said the Indian financial system remains resilient, underpinned by strong bank and non-bank balance sheets, as gross non-performing assets of banks have touched a multi-decadal low of 1.8 per cent at end-March 2026.
Despite repeated shocks, the global financial system has thus far demonstrated notable resilience, with markets remaining orderly after an initial bout of volatility following the outbreak of the West Asia conflict, said the Financial Stability Report (FSR).
“India’s sound macroeconomic fundamentals place it in a stronger position than many of its peers and provide greater resilience to external shocks than in past crisis episodes,” said the half-yearly publication, with contributions from all financial sector regulators.
The report, however, flagged that exchange rate volatility may rise if oil prices increase due to the delayed normalisation of supply chain disruptions and additional demand to replenish inventory.
AI-enabled cyber strike
Artificial intelligence-enabled cyberattacks were classified as the “most important” near-term cyber threat for the Indian banking system by the RBI in its report.
The RBI said it undertook a survey on the system’s preparedness which revealed that financial institutions have established robust practices in cyber risk management, particularly vulnerability assessment and penetration testing of critical information systems. However, cybersecurity awareness and training for employees need strengthening.
Debt servicing
The debt-servicing capacity of listed private non-financial companies improved in the March quarter of 2025-26, with the interest coverage ratio rising to 6.5, even as the share of financially vulnerable firms edged up, the report said.
The RBI said the improvement in the ICR, which is a key measure of a company’s ability to meet interest obligations from operating profits, was driven by a stronger sequential increase in gross profits relative to interest expenses.
Caution on hedge funds
The RBI cautioned that the growing presence of large and leveraged hedge funds in the sovereign global bond market could heighten financial stability risks, warning that a rapid unwinding of their positions during periods of market stress may trigger fire sales and broader market spillovers.