The Reserve Bank of India, in its Financial Stability Report released on Monday, warned that rising public debt, elevated asset valuations, and persistent geopolitical tensions could trigger fresh shocks in financial markets.
The central bank highlighted the volatility in India’s financial markets, particularly in the government bond segment, driven by shifts in policy direction and evolving geopolitical dynamics.
“Financial markets remain volatile, especially core government bond markets, driven by shifting policy and geopolitical environment. Alongside, existing vulnerabilities such as soaring public debt levels and elevated asset valuations have the potential to amplify fresh shocks,” the RBI noted in the report.
According to Union Budget data, India’s public debt — including internal and external liabilities — is projected to exceed ₹196.78 lakh crore by the end of the 2025–26 financial year, up from the revised estimate of ₹181.74 lakh crore for FY 2024–25.
The RBI also expressed concern over excessive risk-taking by non-banking financial companies (NBFCs), stating that this behaviour is adding to systemic vulnerabilities that could potentially destabilise markets.
“As countries confront varying trade-offs between growth and inflation, monetary authorities are charting divergent policy trajectories,” the report observed.
Emerging market economies, the RBI warned, continue to face considerable challenges from global headwinds, including intensifying trade tensions, geopolitical conflicts, and spillover effects from advanced economies.
Despite these concerns, the central bank underlined India’s continued resilience and its role as a key driver of global growth, supported by sound macroeconomic fundamentals and prudent policy-making.
“The Indian economy continues to grow at a healthy pace, which, coupled with steadily moderating inflation, is aiding macroeconomic and financial stability,” the RBI said.
“While the economy and the financial system are relatively well-positioned to withstand tariff-induced shocks, risks from global spillovers and escalation in geopolitical conflicts remain a key concern,” the report stated.
The RBI also detailed a series of ongoing regulatory reforms aimed at strengthening financial stability and enhancing transparency within the financial system.
“These initiatives focus on combating financial and digital fraud, promoting liquidity resilience, regulating digital lending, and safeguarding retail investors,” the central bank added.
