Systemic Risk Survey – A Mirror to India’s Financial Stability

February 9, 2026February 9, 2026 admin 0 Comments banking and finance, FINANCIAL STABILITY, Indian Financial System, Risk management, systemic risk

The Reserve Bank of India (RBI) regularly conducts the Systemic Risk Survey (SRS) to capture the perceptions of market participants regarding potential risks to the financial system. The survey provides a valuable understanding of the collective sentiment of stakeholders such as banks, non-banking financial companies, rating agencies, financial market participants, and academic experts. The SRS serves as an early-warning mechanism for policymakers by capturing perceptions of risk at both domestic and global levels.

The May 2025 round of the SRS, published in the Financial Stability Report (FSR) – June 2025, reveals a strong sense of optimism about the resilience of the Indian financial system. Notably, 91.9% of respondents believe that the financial system will remain stable or become more stable over the next 12 months. This reflects the credibility of India’s macroeconomic fundamentals, effective regulatory actions, and strong capital and liquidity buffers within financial institutions.

Why the SRS Matters

The Indian economy operates in an interconnected global financial system where risks can emerge domestically or spill over from international developments. Traditional indicators such as GDP growth, inflation, or current account deficit capture only part of the story. The SRS complements quantitative data with qualitative insights, offering regulators a broader view of perceptions about vulnerabilities.

For the RBI, the SRS acts as an important input into macroprudential policymaking, helping to identify where vulnerabilities may arise and how confidence among stakeholders shifts over time. It ensures that supervisory focus is not just reactive but also anticipatory.

Key Findings of the May 2025 SRS

1. Improved Confidence in Stability

The most important finding is that 91.9% of respondents believe the financial system will stay stable or get stronger in the coming year. This is better than previous surveys and shows growing trust in India’s economy and the strength of its regulations.

2. Medium-Level Risks Dominate

No risk category was assessed as “high.” Instead, risks were perceived as medium in intensity, showing balanced optimism tempered with awareness of potential vulnerabilities. This moderation in risk perception demonstrates confidence yet caution in light of evolving global and domestic conditions.

3. Top Risk Factors Identified

Respondents identified the following as the top systemic risks:

i. Global Spillovers: Rising geopolitical tensions, global growth slowdown, and financial tightening by major economies remain significant concerns.

ii. Capital Flow Volatility: Sudden inflows or outflows of foreign investment can impact currency stability, bond markets, and reserves.

iii. Cyber Threats: Increasing digitisation of banking services heightens the risk of cyberattacks, data breaches, and IT disruptions.

iv. Asset Price Correction: Elevated valuations in equities and real estate may correct sharply, leading to market stress.

Detailed Analysis of Identified Risks

1. Global Spillovers

India is deeply integrated with the global economy through trade, capital flows, and financial markets. Geopolitical conflicts, shifts in global monetary policies, or supply-chain disruptions can spill over to India’s financial system. Respondents flagged such external headwinds as persistent risks. While India’s macroeconomic resilience has improved, it cannot remain fully insulated from global shocks.

2. Capital Flow Volatility

The survey participants expressed concern over the possibility of volatile capital flows, especially in response to changes in US interest rates, currency pressures, or risk-aversion episodes. While foreign exchange reserves provide a buffer, sudden capital outflows may affect asset prices and exchange rates. However, the successful inclusion of Indian government bonds in global indices is expected to enhance inflows and mitigate risk over time.

3. Cyber Threats

The rapid growth of digital banking and payments has increased efficiency but also created vulnerabilities. Respondents highlighted the rising risk of cyberattacks, system outages, and data theft. The RBI has already strengthened cyber resilience frameworks, but survey participants remain alert to the potential for large-scale disruptions from cyber risks.

4. Asset Price Correction

Equity and real estate markets have seen sustained growth, raising concerns of overvaluation. Respondents worry that sharp corrections could affect investor confidence and lead to broader market stress. While credit exposure to these sectors remains contained, systemic risks cannot be fully ruled out.

Other Emerging Risks

In addition to the four primary risks, respondents also pointed to a set of emerging concerns. Domestic macroeconomic shocks remain a possibility, particularly in the event of unexpected inflationary swings or fiscal imbalances. Some participants also highlighted institutional vulnerabilities, such as governance lapses or potential stress in segments like NBFCs and cooperative banks, which could undermine confidence. Furthermore, climate-related risks are increasingly recognised as a long-term challenge, with the potential to influence asset quality and credit exposures across sectors. These risks, while currently assessed as moderate, underline the need for continuous vigilance and adaptive regulatory responses.

Comparison with Previous Survey (Nov 2024)

Aspect	Nov 2024 Survey	May 2025 Survey
Overall Sentiment	Concerns over inflation and global slowdown	Optimism improved, risks seen as moderate
Macroeconomic Stability	Moderately positive, with inflationary worries	Confidence strengthened
Cyber & External Risks	High concern	Still significant, but the system better prepared
Institutional Resilience	Concerns over select NBFCs and governance issues	Banks are seen as well-capitalised and resilient

The May 2025 SRS highlights a noticeable shift in sentiment from caution to confidence. While risks from cyber threats and global spillovers persist, stakeholders increasingly trust India’s macro fundamentals, banking resilience, and regulatory preparedness, marking a stronger outlook compared to November 2024.

RBI’s Response to Perceived Risks

Insights from the Systemic Risk Survey serve as an important input for the RBI in designing regulatory and supervisory actions. In line with the risks highlighted by stakeholders, the central bank has taken several forward-looking initiatives. These include refining the Liquidity Coverage Ratio (LCR) framework to better capture the behaviour of mobile and digital deposits and issuing a Discussion Paper on Climate Risk and Sustainable Finance to guide institutions in addressing ESG-linked vulnerabilities. The RBI has also strengthened cybersecurity standards and carried out industry-wide resilience exercises. On the external front, it has facilitated Rupee-based trade settlements to mitigate currency volatility risks. Additionally, stress tests of Scheduled Commercial Banks (SCBs) reaffirm that the system remains resilient even under severe stress scenarios.

Interpreting the 91.9% Confidence

The finding that 91.9% of respondents expect the financial system to remain stable or become more stable is a strong affirmation of confidence in India’s institutional and financial resilience. It highlights the impact of RBI’s proactive supervision and timely reforms, the strength of the banking sector with sound capital buffers and low NPAs, and the credibility of India’s macroeconomic stability, marked by controlled inflation and a manageable current account deficit. At the same time, this optimism is not a call for complacency; rather, it reflects resilience while recognising the importance of continued vigilance against external shocks and emerging technology-driven risks.

Conclusion

The Systemic Risk Survey (May 2025) serves as a crucial barometer of financial stability. It captures how market participants perceive risks, balancing optimism about India’s resilience with caution over external spillovers and cyber challenges.

The highlight of the survey is the 91.9% confidence rating, showing that stakeholders overwhelmingly believe in the stability of the financial system. At the same time, the identification of global spillovers, capital flow volatility, cyber threats, and asset price correction as top risks ensures that policymakers remain alert to vulnerabilities.

In sum, the SRS reinforces that India’s financial system is stable, well-capitalised, and resilient, but also reminds stakeholders that systemic stability is a moving target, requiring constant vigilance, regulatory foresight, and coordinated policy measures.