Higher risk buffers by RBI strengthen its balance sheet, support India's macroeconomic outlook: ICICI Bank Report

The Reserve Bank of India's (RBI) decision to maintain higher risk buffers is expected to strengthen its balance sheet and support India's macroeconomic fundamentals, especially at a time when global oil prices are expected to remain benign, according to a recent report by ICICI Bank.The report noted that the RBI's strong risk buffer not only adds to its financial resilience but also provides a tailwind for the broader Indian economy. It said "we believe higher risk buffer by RBI strengthens its balance sheet and provides a tailwind for India's macroeconomic fundamentals when oil prices too are expected to be benign". The central bank's balance sheet stood at Rs 76.3 trillion as of FY25, marking an 8.2 per cent increase over the previous year. Since FY2022, the balance sheet has expanded by 23 per cent, which is lower than the nominal GDP growth of 40 per cent during the same period. In contrast, during the pandemic years from 2019 to 2022, RBI's balance sheet grew by 50 per cent, while nominal GDP rose by only 25 per cent.According to the report, the RBI's balance sheet is expected to grow in line with or faster than nominal GDP in the coming years, supported by an accommodative policy stance. In FY25, the expansion was primarily driven by an increase in domestic securities, which rose by 14.3 per cent year-on-year to Rs 15.6 trillion. Foreign securities saw a modest increase of 1.7 per cent year-on-year to Rs 48.8 trillion, mainly due to muted foreign investment flows. On the asset side, the sharpest rise was in gold holdings, which surged by 52 per cent year-on-year to Rs 6.7 trillion. The central bank added 57 tonnes of gold during the year.On the liabilities front, the growth was led by the Currency and Gold Revaluation Account (CGRA), which rose 15.2 per cent year-on-year to Rs 13 trillion. This was attributed to higher global gold prices and the depreciation of the Indian rupee during the year. The RBI earned Rs 1.1 trillion from its foreign exchange operations in FY25, a 33 per cent jump compared to the previous year. The gross sales and purchases during the year amounted to Rs 65 trillion, compared to Rs 29 trillion in FY24. However, the average spread narrowed to 1.7 per cent in FY25 from 2.9 per cent in FY24, mainly due to a lower average depreciation of the rupee, 2.1 per cent this year compared to 3 per cent last year.The report added that the outlook for foreign exchange has shifted fundamentally. While the US dollar was strong last year due to economic exceptionalism, the dollar index has declined by 8.3 per cent in 2025 so far. This change has improved the position of emerging market currencies, including the rupee.