RBI’s Higher Risk Buffers Strengthen Balance Sheet and Support India’s Macroeconomic Outlook: ICICI Bank Report
The Reserve Bank of India’s (RBI) decision to maintain higher risk buffers is poised to strengthen its balance sheet and bolster India’s macroeconomic fundamentals. This move comes at a critical time when global oil prices are expected to remain benign, providing a favorable backdrop for the Indian economy.
Stronger Financial Resilience Through Higher Risk Buffers
According to a recent analysis by ICICI Bank, the RBI’s elevated risk buffers not only enhance the central bank’s financial resilience but also act as a significant tailwind for India’s broader economic stability. The report emphasizes that these buffers will help the RBI navigate uncertain global conditions while supporting sustainable economic growth.
Growth in RBI’s Balance Sheet and Its Implications
As of FY25, the RBI’s balance sheet stood at approximately Rs 76.3 trillion, marking an 8.2% increase compared to the previous fiscal year. Since FY22, the balance sheet has expanded by 23%, which is notably lower than the 40% nominal GDP growth seen during the same period. This trend contrasts with the pandemic years from 2019 to 2022, when the balance sheet grew by 50%, outpacing the 25% nominal GDP growth.
Looking ahead, the RBI’s balance sheet is expected to grow in line with or even faster than nominal GDP, supported by an accommodative monetary policy stance.
Key Drivers Behind the Balance Sheet Expansion
The expansion in FY25 was primarily driven by a 14.3% year-on-year increase in domestic securities, rising to Rs 15.6 trillion. Foreign securities saw only a modest increase of 1.7%, reaching Rs 48.8 trillion, due largely to subdued foreign investment flows.
Among assets, gold holdings experienced the sharpest growth, surging by 52% to Rs 6.7 trillion, with the RBI adding 57 tonnes of gold during the year. On the liabilities side, the Currency and Gold Revaluation Account (CGRA) grew by 15.2% year-on-year to Rs 13 trillion. This increase was largely driven by higher global gold prices combined with the depreciation of the Indian rupee during FY25.
Foreign Exchange Operations and Market Outlook
The RBI earned Rs 1.1 trillion from foreign exchange operations in FY25, reflecting a 33% rise from the previous year. Total gross sales and purchases during the year amounted to Rs 65 trillion, more than double FY24’s Rs 29 trillion. However, the average spread narrowed to 1.7% in FY25 from 2.9% in FY24, influenced by a lower average rupee depreciation of 2.1% compared to 3% the previous year.
Changing Outlook for the US Dollar and Global Currency Markets
The report also notes a fundamental shift in the foreign exchange outlook. After a strong performance last year fueled by economic exceptionalism in the US, the dollar index has declined by 8.3% so far in 2025. This decline signals a changing dynamic in global currency markets, which could have significant implications for India’s exchange rate and trade environment.
The RBI’s strategy to maintain higher risk buffers has reinforced its financial position, providing greater stability amid global uncertainties. Combined with benign global oil prices and an accommodative monetary stance, this sets a positive tone for India’s macroeconomic outlook. As global economic conditions evolve, the RBI’s robust balance sheet and proactive policy measures will be key in supporting sustainable growth and financial stability.
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