The Reserve Bank of India (RBI) has published its Financial Stability Report for June 2026, noting that risks are mounting to AI-linked investment worldwide, while stating that India’s financial system continues to hold up under external pressure.
Global markets have moved past the initial shock from the West Asia conflict and are now being supported largely by momentum in AI-related spending. The Economic Times reports that AI investment is now spilling into bond markets, with hyperscalers ramping up capital expenditure on AI infrastructure even as their free cash flows have declined.
Companies including Microsoft, Meta, Google, NVIDIA, Amazon and Anthropic have sharply increased debt issuances over the past two years to fund this buildout, with longer-tenor borrowing rising notably in 2026. The RBI notes that a correction in AI-linked asset prices could carry systemic consequences, since banks hold indirect exposure through private credit firms and other intermediaries that finance the sector.
The report also points to non-bank financial intermediaries (NBFIs), which it says are expanding at twice the rate of the global banking sector. Their rising footprint across asset classes heightens the risk of shock amplification and of turning market turmoil into financial instability, the report states.
On sovereign debt, the RBI notes that bond yields in several advanced economies have reached levels not seen in 20 years, following the war in West Asia. It attributes this to inflationary pressures from higher energy prices, expectations of central bank rate hikes, sustained fiscal deficits requiring higher bond issuance, and quantitative tightening.
Governments have also shortened the maturity profile of their debt, leaving them more exposed to refinancing risk at a point when borrowing needs are rising, with refinancing needs among Organisation for Economic Co-operation and Development countries reaching a record $13.5 trillion in 2025.
On the domestic front, the RBI states that Indian banks remain in a stable position, supported by capital levels, asset quality and profitability. Macro stress test results showed that the banking system remains well-positioned to absorb potential shocks.
Non-banking financial companies were also described as financially sound, supported by capitalisation, profitability, and improving asset quality, while the insurance sector maintained solvency levels above the minimum threshold.
The report flags funding as an area for monitoring. It notes that banks’ liability profile is shifting from low-cost current and savings account deposits to higher-cost term deposits and certificates of deposit, which raises the marginal cost of funds.
Banks have also been drawing down excess statutory liquidity ratio investments to support credit growth, leading to a decline in liquidity coverage ratio buffers. Gold loans were identified as a segment for close monitoring.
The RBI reported that gold loans have become the largest segment within non-housing retail loans, expanding at a compound annual growth rate of 42.4% since March 2024, compared with 23% growth in overall non-housing retail loans. Both banks and NBFCs are increasing disbursements during 2025-26 amid rising gold prices.
The report added that a sustained correction in gold prices could reduce collateral cover, increase borrower stress, and lead to higher delinquencies.
Regarding cyber risk, the RBI identified AI-enabled cyberattacks as the most significant near-term challenge from a cyber threat perspective. It also noted that growth in gold imports slowed substantially in May compared with April.
Household debt reached 45.5% of gross domestic product by the end of September 2025, driven mainly by non-housing retail loans, which made up 58.4% of total household borrowings as of March 2026.
Summing up the domestic outlook, the RBI stated that India’s macroeconomic fundamentals provide a cushion against external shocks, while flagging that repeated global disruptions could tighten financial conditions over time.
Your reaction
Discussion
What's your take on this story?
No comments yet — be the first to share your view.