India's Reserve Bank warns that stablecoin risks to financial stability outweigh their benefits

The Indian government remains skeptical of stablecoins and believes they can cause significant harm to financial stability. 

India’s Reserve Bank has urged countries in its Financial Stability Report to prioritize digital currencies issued by banks over privately issued stablecoins. 

What is the Indian government’s attitude towards stablecoins? 

The Reserve Bank of India released its Financial Stability Report this Wednesday, and within the report is a strong warning against stablecoins, stating that “risks from stablecoins to macrofinancial stability outweigh their purported benefits.”

The RBI “strongly advocates” that countries should prioritize Central Bank Digital Currencies (CBDCs) over privately issued stablecoins to maintain trust in money and preserve financial stability. Stablecoins have gained increasing acceptance globally, but the central bank is more concerned with the financial stability risks associated with their growing use. 

India has been working on its own digital rupee for over two years. The RBI started testing the digital rupee in December 2022, and the pilot program now has over 5 million users and 400,000 merchants, according to recent reports. 

India has not banned cryptocurrencies, but the government taxes crypto gains at 30% and adds a 1% tax on all crypto transactions, making it hard to use. Finance Minister Nirmala Sitharaman has said repeatedly that India will not recognize private cryptocurrencies as legal money.

The report also revealed that gross bad loans of Indian banks could drop to 1.9% by the end of March 2027 from 2.1% recorded at the end of September 2025. 

“The Indian economy and the financial system remain robust and resilient,” Governor Sanjay Malhotra wrote in the report’s foreword. “Nonetheless, we recognize the near-term challenges from external spillovers and continue to build strong guardrails to safeguard the economy and the financial system from potential shocks.”

How are India’s Non-Banking Financial Companies doing?

The RBI conducted stress tests on 174 Non-Banking Financial Companies (NBFCs) over a one-year period, and results revealed that gross bad loans of non-bank lenders may rise to 2.9% in September 2026 from 2.3% in September 2025. 

The RBI noted that “even as the GNPA (gross non-performing assets) ratio in NBFCs has declined, fresh accretions to NPAs are trending higher.” Additionally, companies are writing off more loans, indicating a build-up of stress in their loan portfolios.

Non-banking financial companies provide credit to sectors and borrowers that traditional banks may not serve. Any significant stress in this sector could have ripple effects throughout the economy.

The central bank also warned that insurance companies are spending more money, which will hurt the profits of the sector. In October 2025, the RBI told NBFCs to be more selective with their loans after it was observed that some NBFCs were taking too many risks with personal loans and credit cards. Several large NBFCs have already reported higher bad loans in recent months.

The RBI’s report included stress test scenarios that model different economic conditions. If the economy maintains its normal condition, that is, a GDP growth of 7.3% for the current financial year and 6.7% and 6.8% for the first two quarters of 2026-27, the banking sector will continue to strengthen.

However, gross bad loans may rise to 3.2% if economic growth slows down slightly. A sharp economic decline could push bad loans to 4.2%. 

The European Central Bank is working on a digital euro. And Cryptopolitan recently reported that China has already launched its digital yuan in many cities.

Don’t just read crypto news. Understand it. Subscribe to our newsletter. It's free.