June 30, 2026, (Inside AI) — Geopolitical fragmentation and rapid advances in artificial intelligence are the two dominant forces reshaping the global economy, according to Reserve Bank of India Governor Sanjay Malhotra. The central bank’s latest Financial Stability Report warns that the risk of adverse external shocks has intensified, creating an uncertain near-term outlook for policymakers.
Malhotra stressed that while the Indian economy has shown resilience, vigilance remains critical. “We remain alert to evolving external and domestic risks, and are committed to further strengthening the guardrails that protect our economy and financial system from potential shocks,” he said.
The report arrives as India’s banking sector posts a multidecadal low gross non-performing asset ratio of 1.8% in March 2026. Yet stress tests reveal vulnerabilities: under a baseline scenario, the GNPA ratio could edge up to 1.9% by March 2028. In severe adverse conditions, it may spike to 4.1%.
Global financial stability risks remain elevated, Malhotra noted. “Inflationary pressures may require major advanced economy central banks to maintain a hawkish policy stance, potentially tightening global financial conditions.” He added that high public debt, bond market fragilities, stretched asset valuations, and the growing footprint of leveraged non-bank intermediaries could amplify future shocks.
Despite these headwinds, the global economy has stayed resilient—partly buoyed by optimism around AI-driven productivity gains. Malhotra highlighted that financial markets are functioning orderly, with India’s financial system acting as a key source of strength for the real economy.
The report underscores that banks and non-banking financial institutions remain sound, backed by strong capital buffers, healthy profitability, and robust credit growth. However, agriculture continues to show stress, with a GNPA ratio of 5.1%—the highest among sectors—accounting for 37.2% of scheduled commercial banks’ total GNPAs.
Credit quality improved broadly across industry and personal loans. The share of large borrowers in total credit rose marginally to 44.5%, but their GNPA share declined steadily, with the aggregate ratio falling to 1.2% from 2.4% in September 2024.
Malhotra emphasized that maintaining public confidence requires more than prudential soundness. “Our objective remains unchanged: we want to foster a financial system that is not only resilient and stable, but also efficient, inclusive, and dynamic,” he said.
