Context:
RBI Governor Sanjay Malhotra addressed the key economic aspects of India’s banking sector and broader financial landscape during his speech at an event organized by the Confederation of Indian Industry (CII) and the US-India Strategic Partnership Forum.
Key Points from RBI Governor’s Address
- Banking Sector Resilience:
- Healthy Balance Sheets and Liquidity Buffers: Malhotra highlighted that the Indian banking sector remains robust with adequate capital and liquidity buffers, enabling it to meet the investment needs of society and industry.
- Positive Credit Growth: Despite a slight moderation in recent months, bank credit growth continues at a double-digit rate of about 12%, surpassing the 10.5% average over the last decade.
- Non-Performing Assets (NPAs): The banking sector has seen a decline in NPAs, which has contributed to stronger profitability and overall soundness of scheduled commercial banks (SCBs).
- Economic Outlook:
- Monetary Policy Stance: With a moderate growth outlook and benign inflation, the RBI has adopted an accommodative monetary policy. The policy rate was reduced by 50 basis points cumulatively in 2025.
- Geopolitical Resilience: India’s economy has shown resilience to external shocks, particularly those arising from US tariff policies. The country’s relatively lower dependence on exports and strong domestic demand cushion it from global uncertainties.
- Growth Forecast: Domestic economic growth for the current financial year is projected at 6.5%, slightly below previous years, but still the highest among major economies.
- External Sector Stability:
- Manageable Current Account Deficit (CAD): The current account deficit, at 1.3% of GDP, remains within manageable limits, supported by strong services exports and private remittances.
- Rupee Stability: The rupee has maintained a relatively orderly movement despite recent volatility, bolstered by strong macroeconomic fundamentals and ample foreign exchange reserves.
- Foreign Direct Investment (FDI): FDI inflows to India increased to $75.1 billion in the 2024-25 period, reflecting continued investor confidence despite a moderation in inflows due to higher repatriations.
- Fiscal and Government Policy:
- Fiscal Consolidation Efforts: Malhotra praised the Indian government’s commitment to fiscal consolidation while focusing on growth-inducing spending. The share of central government’s capital expenditure as a percentage of GDP surged from 1.7% in 2019-20 to 3.1% in 2024-25.
- Improved Quality of Government Spending: The focus on better-targeted government spending has enhanced the overall quality of expenditure, contributing to stronger economic fundamentals.
- India’s Growth Trajectory:
- Historical Growth Trends: Over the last four years (2021-2025), India’s GDP has grown at an average annual rate of 8.2%, marking a significant increase from the average growth of 6.6% in the previous decade.
- Global Economic Standing: India remains the fastest-growing major economy globally, positioning itself for sustained economic progress in the coming years.
- Commitment to Economic Reforms:
- Malhotra emphasized that economic liberalization and market-oriented policies have remained a consistent theme across successive Indian governments, regardless of political affiliations. This has fostered an environment conducive to reforms and economic liberalization over the years.
Governor Sanjay Malhotra’s speech reflects India’s economic resilience, stable growth prospects, and the continued robustness of its banking and financial systems. The emphasis on fiscal discipline, government spending on infrastructure, and ongoing reforms showcases India’s commitment to long-term economic stability and growth. The positive outlook on banking credit growth, FDI, and fiscal consolidation positions India as an attractive destination for both domestic and foreign investments.
