The Reserve Bank of India (RBI) released its biannual Financial Stability Report (FSR), confirming that India’s domestic financial system remains “robust and resilient” on Wednesday, 31 December 2025.
Backed by multi-decade lows in bad loans and strong bank balance sheets, the economy continues to expand at a robust pace despite global headwinds. However, the central bank cautioned that near-term stability faces risks from a surge in unsecured retail lending, fintech exposure, and the widespread adoption of stablecoins.
RBI Governor Shaktikanta Das emphasized that while the growth outlook is positive, vigilance is required against geopolitical uncertainties and emerging structural fragilities in the digital finance space.
Strong Growth Fundamentals
The December 2025 FSR highlights that India’s real GDP growth has consistently surprised on the upside, registering 7.8% in Q1 and 8.2% in Q2 of the current fiscal year. This momentum is supported by strong private consumption, public investment, and a healthy digital public infrastructure.
A standout achievement is the health of scheduled commercial banks (SCBs), with the gross non-performing assets (GNPA) ratio reaching a multi-decade low of 2.1% in September 2025.
The RBI projects this ratio could further improve to 1.9% by March 2027 under baseline scenarios, indicating that the Indian banking sector is better positioned to absorb shocks than it has been in years.
Unsecured Retail Lending
Despite the overall positive health of the banking sector, the RBI flagged a concerning trend in retail lending. More than half of all retail loan slippages, approximately 53.1%, are now originating from unsecured products like personal loans and credit cards.
For private sector banks, the situation is even more acute, with unsecured loans contributing to nearly 76% of their fresh slippages. The report noted that the GNPA ratio for unsecured retail loans stands at 1.8%, notably higher than the 1.1% seen in overall retail advances.
This surge suggests a growing dependency on high-interest credit among individual consumers, which could pose a risk if economic conditions tighten.
Fintech Growth & Risks
The report also shines a spotlight on the rapid expansion of fintech lending, which grew by 36.1% between September 2024 and September 2025. Unsecured loans currently account for more than 70% of fintech firms’ total loan books, with over half of these loans extended to borrowers under the age of 35.
The RBI expressed concern over “elevated impairment” among borrowers who have taken unsecured loans from five or more different lenders.
This “over-leveraging” through digital platforms indicates that young borrowers are increasingly trapped in cycles of debt, necessitating closer monitoring by regulators to prevent a localized credit crisis within the fintech ecosystem.
Monetary Sovereignty
In a special feature, the RBI reiterated its stern stance against the widespread adoption of stablecoins and private cryptocurrencies. The central bank warned that foreign currency-denominated stablecoins could erode India’s monetary sovereignty, weaken the transmission of monetary policy, and complicate capital flow management.
The report cautioned that these assets are vulnerable to confidence shocks and structural fragilities, potentially facilitating money laundering and terrorism financing.
The RBI maintains that central bank digital currencies (CBDCs) are the only safe path forward, as they deliver the efficiency of digital programmability while preserving the essential trust in central bank-backed money.
The Logical Indian’s Perspective
At The Logical Indian, we believe that while a “robust and resilient” financial system is a cause for optimism, true economic stability must be measured by the financial health of the common man.
The surge in unsecured lending, especially among those under 35, suggests a growing culture of debt-led consumption that could become a trap during an economic downturn. We advocate for a financial ecosystem that prioritises productive lending over predatory fintech practices that encourage over-leveraging.
While we celebrate the multi-decade low in bad loans, we must ensure that “stability” isn’t just a number on a balance sheet but translates into a safer, more equitable future for every citizen.
