RBI Warns Against Complacency on Financial Stability: Macroprudential Policy, NPAs and the FSDC Explained
The Governor of the Reserve Bank of India (RBI), Sanjay Malhotra, spoke at the Kautilya Economic Conclave in New Delhi on 3 October 2026.
He said that today's strong financial system should not be taken as a guarantee for the future: "today's resilience may not necessarily imply tomorrow's immunity". The RBI will stay alert to new risks.
He reminded listeners that banking stress can build quickly but take years to fix. It took nearly a decade to clean up the bad loans (NPAs) created by excessive lending in an earlier period.
He listed new global risks: very high government and private debt, very high share prices linked to artificial intelligence (AI) that could fall sharply, heavy borrowing by hedge funds and similar investors, and defaults in private credit (loans given by investment funds instead of banks). He also flagged cyber attacks, geopolitical events and technology failures, and noted that new risks increasingly come from outside India and spread across borders.
He described the RBI's toolkit: prudent regulation, risk-based supervision, macroprudential measures, liquidity support and resolution frameworks. He stressed a "separation principle": monetary policy (interest rates) is for keeping prices stable, while targeted regulatory tools are used for financial stability.
He called for better data, especially on non-bank financial institutions (NBFIs), linked exposures and cross-border positions, and said new technologies like AI and tokenisation must not weaken trust in the financial system.
Systemic Risk and Macroprudential Regulation
Systemic risk is the danger that trouble in one part of the financial system spreads and harms the whole system and the wider economy. Macroprudential regulation is the set of rules and tools that a regulator uses to reduce this system-wide danger. Normal banking rules check whether each bank is safe. Macroprudential rules check whether the whole system is safe. In India, the RBI is the main user of these tools, with other regulators like SEBI and IRDAI.
The RBI Governor's warning is about systemic risk: dangers such as AI-linked market bubbles, high debt and private credit defaults that could spread across borders and institutions. His mention of macroprudential measures and the "separation principle" shows that the RBI will use targeted tools, not interest rates, to deal with such risks.
Non-Performing Assets (NPAs): Definition, Classification, and Measurement
A Non-Performing Asset (NPA) is a loan that has stopped "performing", meaning the borrower has stopped paying interest or instalments for a long time. In India, a loan usually becomes an NPA when interest or principal is overdue for more than 90 days. For a bank, a loan is an asset because it earns interest. When that income stops, the asset is "non-performing". A high level of NPAs makes banks weak, cuts their profits and reduces their ability to give new loans.
When the RBI Governor said it took nearly a decade to clean up the earlier wave of bad loans, he was referring to this NPA cycle: the build-up, the 2015 AQR, the 2018 peak and the long clean-up. His point is that today's very low NPAs are not permanent, so stress must be spotted early.
Financial Stability and Development Council (FSDC)
The Financial Stability and Development Council (FSDC) is India's top forum where the government and all financial regulators sit together to protect the stability of the financial system. It is chaired by the Union Finance Minister. It was set up by the Central Government in December 2010. It is not created by any law, so it is a non-statutory body.
The RBI Governor's call for "system-wide resilience" covering banks, NBFIs, markets, payment systems and cross-border networks is exactly the kind of risk that cuts across regulators. Such risks are watched jointly through the FSDC and its Sub-Committee, whose view is published in the RBI's Financial Stability Report.
- Speech: RBI Governor at the Kautilya Economic Conclave, New Delhi, 3 October 2026
- Key line: "today's resilience may not necessarily imply tomorrow's immunity"
- Risks flagged: high global debt, AI-linked asset valuations, leverage in hedge funds and ETFs, private credit defaults, cyber and AI model risks
- RBI's financial stability tools: prudent regulation, risk-based supervision, macroprudential measures, liquidity support, resolution frameworks
- "Separation principle": monetary policy for price stability; targeted regulatory tools for financial stability
- Banks (March 2026): GNPA 1.8%, CRAR 17.7%, CET1 15.3%
- Earlier NPA peak: about 11.2% (March 2018)
- FSDC: set up December 2010; FSR published twice a year (first in March 2010)