RBI MPC speech: FDI, forex reserves, credit growth — what Governor Sanjay Malhotra said on global financials
The Reserve Bank of India (RBI) raised the repo rate by 25 basis points to 5.5% on Wednesday and changed its monetary policy stance to “calibrated tightening”, as the central bank assessed rising inflation risks and a challenging global environment. The Monetary Policy Committee kept its options open for either a further rate hike or a pause, depending on how economic conditions evolve.
Beyond the rate decision, RBI Governor Sanjay Malhotra’s policy statement offered a detailed assessment of India’s financial position. Foreign direct investment has strengthened, bank credit is growing at a faster pace and foreign exchange reserves remain high.
At the same time, foreign portfolio investors have continued to withdraw money from Indian markets amid global uncertainty, higher bond yields and elevated crude oil prices.
FDI inflows rise, but foreign portfolio investors remain cautious
India’s net FDI inflows rose to $13.8 billion between April and August 2026, compared with $9.6 billion in the same period last year. The RBI said the improvement was driven by higher gross FDI inflows and slower outward FDI. Gross FDI grew 20.6% during the period.
The RBI also highlighted India’s position in greenfield investments. India ranked third globally in announced greenfield FDI projects during April-August 2026, with projects worth $41.3 billion.
Portfolio flows, however, have been weaker. FPIs recorded net outflows of $10.3 billion between April and 5 October 2026. The RBI said measures announced in June had supported capital inflows and that the balance of payments was expected to remain in healthy surplus.
India’s forex reserves remain a major buffer
India’s foreign exchange reserves stood at $734.6 billion as of 2 October 2026, according to the RBI. The reserves provide around 11 months of import cover and cover 94.4% of India’s external debt.
The RBI said it would continue to facilitate an orderly adjustment of the exchange rate in line with macroeconomic fundamentals while curbing excessive volatility.
Other external flows have also strengthened. Net inflows into non-resident deposits rose to $119.2 billion during April-August 2026, compared with $5.6 billion a year earlier. Gross external commercial borrowing disbursements increased to $23.9 billion from $17 billion.
Bank credit growth accelerates
The RBI also pointed to stronger credit activity in the domestic economy. Bank credit grew 18.1% year-on-year as of 15 September 2026, compared with 10.4% a year earlier. Credit growth was broad-based, with retail and services lending remaining buoyant. Industrial credit growth more than doubled, while lending to MSMEs and agriculture also strengthened.
The health of the banking system has also improved. Scheduled commercial banks had a 17.87% capital adequacy ratio in June 2026. Gross non-performing assets fell to 1.67% from 2.22% a year earlier, while net NPAs declined to 0.39% from 0.51%.
The RBI said the non-banking financial company sector also remained sound, with a capital adequacy ratio of 25.50% and gross NPAs of 2.50%, down from 3.09% a year earlier.
Global financial conditions remain a key risk
The RBI’s assessment of India’s financial sector comes against a difficult global backdrop. The central bank flagged the West Asia conflict, elevated crude oil prices, higher global bond yields, a stronger dollar and fragile financial-market sentiment as key risks.
India’s current account deficit remained contained at 0.5% of GDP in the first quarter of FY27, or $4.2 billion, compared with 0.4% a year earlier. However, the merchandise trade deficit widened to $58.7 billion in July-August 2026 from $55.1 billion a year earlier, partly due to higher electronics and crude oil imports.
The RBI said India’s services surplus, remittances and trade agreements provide resilience, but global trade moderation, high energy prices and trade-policy uncertainty remain risks.
Overall, the Governor’s message was that India’s domestic financial system remains resilient, supported by stronger FDI, healthy bank credit and large forex reserves, even as global financial conditions remain volatile and foreign portfolio flows stay under pressure.
