SynopsisIn the fiscal year 2025-26, India's financial landscape demonstrated remarkable stability. Both banks and non-bank entities showcased solid balance sheets, reflecting a significant uptick in asset quality and sturdy capital reserves. With gross bad loans hitting their lowest levels in decades, comprehensive stress tests reaffirmed that banks are well-prepared for potential financial adversities.ET OnlineAI-generated imageThe Reserve Bank of India (RBI) on Thursday said that India's financial sector remained resilient in 2025-26, supported by healthy bank and non-bank balance sheets, improved asset quality and strong capital buffers. The central bank affirmed confidence in India's banking sector, indicating that it remains healthy, with gross bad loans at multi-decadal lows and stress tests showing banks can withstand severe shocks without breaching capital norms."Stress test results reaffirmed the resilience of banks, indicating their ability to withstand losses under adverse scenarios while maintaining capital buffers well above the regulatory minimum," the central bank said in its Annual Report. RBI further highlighted that the financial sector remained resilient on the back of healthy bank and non-bank balance sheets, improved asset quality and capital buffers, enabling double-digit credit growth.Also read: India steers boat through a risky channel between war clouds and El NinoRBI noted that bank credit growth gained momentum across sectors and outpaced deposit growth during the year, leading to a rise in the credit-deposit ratio. The transmission of policy repo rate changes to banks’ deposit and lending rates also remained robust amid conducive liquidity conditions.Bank credit to the commercial sector grew 15.9% year-on-year in 2025-26, up from 10.9% a year ago, while credit from non-bank sources expanded 13.3%, underscoring the continued strength of financial intermediation in the economy, the report said.RBI noted that profitability of scheduled commercial banks remained robust alongside improvement in asset quality. The gross non-performing assets (GNPA) ratio declined to a multi-decadal low, while the capital to risk-weighted assets ratio (CRAR) remained comfortably above regulatory requirements.The report added that asset quality and capital adequacy of non-banking financial companies (NBFCs) remained strong during the year. Urban co-operative banks also witnessed improved credit and deposit growth along with robust capital buffers and higher profitability.The central bank further said the share of external benchmark-based lending rate (EBLR)-linked loans increased during the year, aiding faster monetary policy transmission, while the proportion of marginal cost of funds-based lending rate (MCLR)-linked loans continued to decline.RBI on Central Bank Digital Currency (CBDC)The RBI indicated that it expanded its experimentation with Central Bank Digital Currency (CBDC) during 2025-26 by launching multiple pilots linked to direct benefit transfer (DBT) schemes of the Centre and state governments.In its Annual Report, the central bank said programmable CBDC was used to deliver food subsidies under the public distribution system (PDS) in Gujarat, Puducherry and Chandigarh. Beneficiaries were credited subsidies through CBDC wallets that could be redeemed only for eligible commodities at fair price shops and designated merchants.The RBI said the pilots leveraged the programmability feature of CBDCs, allowing targeted use of funds and improving efficiency in subsidy delivery.The central bank also advanced efforts in tokenisation of financial assets through the development of the Unified Markets Interface (UMI), a multi-layer platform aimed at improving settlement efficiency using wholesale CBDC.“A pilot on tokenisation of certificates of deposit (CDs) was initiated on UMI,” the report said.On cross-border payments, RBI said it signed a memorandum of understanding with the Monetary Authority of Singapore (MAS) for collaboration on digital assets and held bilateral discussions with MAS and the Central Bank of the UAE (CBUAE) to operationalise a cross-border CBDC pilot.The RBI also joined multilateral initiatives led by the Bank for International Settlements (BIS) Innovation Hub, including Project Rialto and Phase 2 of Project Mandala, focused on improving cross-border payments using CBDCs.The report comes as central banks globally continue to explore digital currency infrastructure to improve payment efficiency, lower transaction costs and strengthen cross-border settlement systems.The research by the U.S.-based Atlantic Council think tank revealed that 146 countries & currency unions, representing over 98% of global GDP, are exploring a CBDC. There is a new high of 77 countries in the advanced phase of exploration, which includes development, pilot, or launch.Read More News on...moreless