The Reserve Bank of India (RBI) has painted a picture of a fundamentally strong economy but one navigating significant emerging risks. In its latest Financial Stability Report (FSR) for December 2025, the central bank affirmed that India's financial system remains "robust and resilient", powered by vigorous domestic demand, manageable inflation, and healthy banks. However, it issued clear cautions regarding the rapid growth of unsecured retail lending, the concentrated exposure of fintech firms, and the potential threat to monetary sovereignty from widespread stablecoin adoption.
Strong Growth Momentum and Banking Health
The report underscored a surprisingly strong economic performance in the first half of the current fiscal year. Real GDP growth registered 7.8% in Q1 and accelerated to 8.2% in Q2 of FY 2025-26. This expansion was fueled by solid private consumption and sustained public investment. The outlook remains positive, supported by factors like low inflation, easy financial conditions, a good monsoon, and ongoing digital infrastructure development.
The health of India's scheduled commercial banks continues to improve markedly. The Gross Non-Performing Assets (GNPA) ratio hit a multi-decade low of 2.1% in September 2025 and is projected to improve further to 1.9% by March 2027 under a baseline scenario. Banks are also well-capitalized, with the Capital to Risk-Weighted Assets Ratio (CRAR) standing strong at 16% for public sector banks and 18.1% for their private sector counterparts.
Emerging Risks: Unsecured Loans and Fintech Lending
Despite the overall strength, the RBI pinpointed specific areas of concern. A significant portion of stress in the retail loan book is emanating from unsecured products. The report revealed that more than half (53.1%) of all retail loan slippages are from unsecured loans like personal loans and credit cards. This trend is particularly pronounced in private sector banks, where such loans contributed to nearly 76% of fresh slippages.
The central bank directly linked part of this risk to the booming fintech lending sector. Fintechs' loan books are dominated by unsecured loans, which make up over 70% of their total lending. Alarmingly, more than half of these loans are extended to borrowers under the age of 35. The sector saw explosive growth of 36.1% between September 2024 and 2025, primarily driven by personal loans. The RBI highlighted "elevated impairment among borrowers who have taken unsecured loans from five or more lenders", a pattern often facilitated by fintech platforms.
Stablecoins: A Threat to Monetary Control?
In a special section, the RBI issued a stark warning about the potential dangers of stablecoins—cryptocurrencies pegged to traditional assets like the US dollar. It argued that widespread adoption of foreign currency-denominated stablecoins could erode India's monetary sovereignty, weaken the transmission of monetary policy, and complicate the management of capital flows. For an emerging economy like India, this poses a substantial risk to financial stability.
The central bank reiterated that central bank money must remain the bedrock of the financial system, suggesting that a Central Bank Digital Currency (CBDC) could offer modern benefits like efficiency without compromising trust. It cautioned that stablecoins can be volatile, vulnerable to sudden loss of confidence, and could be misused for illicit activities like money laundering and terrorism financing if left inadequately regulated.
The report also noted external pressures on the Indian rupee, attributing its depreciation against the US dollar to factors like falling terms of trade, high tariffs, and a slowdown in capital flows.
In conclusion, while India's economic and financial foundations are deemed solid, the RBI's report serves as a proactive alert. It calls for vigilant monitoring of the fast-evolving landscape of digital finance and consumer credit to safeguard the stability achieved through years of prudent policy.
