The Indian economy and banking sector are well positioned to withstand emerging global risks arising from the West Asia crisis, shifting trade policies, tariffs and growing cyber threats, Reserve Bank of India (RBI) Governor Sanjay Malhotra said.
Speaking at the FICCI-IBA Annual Banking Conference, Malhotra acknowledged that the global economic environment remains challenging, citing elevated public debt in advanced economies, increasing interconnectedness between non-banking financial companies (NBFCs) and the unregulated financial sector, and high equity valuations.
“If there are corrections, all of these could have spill-over effects,” the Governor said while responding to questions from members of the Federation of Indian Chambers of Commerce and Industry (FICCI).
He, however, stressed that India’s financial system has sufficient resilience to absorb such shocks.
“The Indian economy and the Indian banking sector are very well positioned to meet these risks, meet these challenges,” Malhotra said, highlighting the strength of the country’s banking sector.
According to the RBI Governor, banks currently have a capital to risk-weighted assets ratio (CRAR) of around 17–18 per cent, while gross non-performing assets (GNPAs) are below 2 per cent and net NPAs are below 0.5 per cent.
Banks also have strong liquidity coverage ratios, healthy profitability and improving price-to-book valuations, he added.
Malhotra said India’s macroeconomic fundamentals remain strong, with resilient economic growth, inflation broadly under control and healthy balance sheets among both financial and non-financial companies. The country’s external sector is also in a robust position, he noted.
West Asia Crisis May Impact Short-Term Growth
The Governor said the ongoing West Asia crisis could temper India’s economic growth in the short term, but argued that the measures being taken to address external vulnerabilities could strengthen the economy over the longer term.
He pointed to efforts to diversify supply chains for energy, fertilisers and other critical commodities, along with initiatives aimed at reducing India’s energy intensity.
The expansion of ethanol blending and electric vehicle adoption, as well as the government’s efforts to conclude more free trade agreements (FTAs), were among the measures he highlighted.
Malhotra also pointed to steps taken to facilitate and strengthen capital flows as measures that would improve India’s ability to deal with external shocks.
He noted that India had successfully navigated previous major disruptions, including the COVID-19 pandemic and the Russia-Ukraine crisis, emerging from them with stronger economic and financial systems.
While geopolitical tensions, global trade policy changes and cyber risks remain significant challenges, Malhotra said India’s strong domestic fundamentals and ongoing structural reforms provide a solid foundation for navigating these uncertainties.
