# 1 Markets
1.1 Markets rose ~1% in the holiday-shortened last week, closing near record highs at 26,328 and 85,762 respectively. Broader markets shone brighter signalling robust risk appetite and broad participation. Year-end flows remained cautious but positive, extending 2025’s momentum into 2026’s first trading week. Indian equity markets are projected to stay range-bound with an upward bias this week and next, supported by strong domestic fundamentals, DII inflows and healthy earnings outlook.
1.2 Indian 10Y G-sec yields stayed rangebound at ~6.61% as RBI’s short-end OMO support offset heavy state bond supply and elevated Q4 issuance.
1.3 US equities ended the holiday-shortened week mixed to lower, with Dow down 0.7%, S&P 500 off 1.0% and Nasdaq declining 1.0% amid profit-taking and thin volumes.
1.4 US 10Y yields rose ~5 bps to 4.41% in a thin holiday week on profit-taking and lingering fiscal concerns; 2Y held near 4.15% as Fed cut expectations stayed anchored.
# 2 RBI
2.1 Key highlights from RBI Trend and progress report released last week
2.1.1 Banks:
Indian banks are resilient, with strong balance sheets supported by double digit balance sheet expansion, deposit and credit growth, high capital buffers, sustained profitability and bad loans at multi-decade lows, with emerging pressures in unsecured lending, SFB asset quality and frauds.
- At end-March 2025 there were 139 commercial banks: 12 PSBs, 21 PVBs, 44 foreign banks, 11 SFBs, 6 PBs, 43 RRBs and 2 LABs.
- PSBs’ share in assets slipped to 54.9%, PVBs to 37.1%.
- PSBs’ share in advances rose to 56.2% while their share in deposits fell to 58.8%.
- Deposit growth moderated, driven by slower term deposits; overall deposit growth ex-merger was 11.4% in 2024-25 vs 13.4% earlier.
- Credit growth moderated across PSBs, PVBs and FBs, but remained in double digits; credit-deposit ratio rose to 79.2% at March 2025 and 80.5% by end-November 2025.
- Profitability of the SCBs remained robust with the return on assets (RoA) at 1.4 % and return on equity (RoE) at 13.5% in 2024-25.
- Unsecured loans fell to 24.5% of advances; FBs still have the highest unsecured share, with PSB and PVB shares converging downwards.
- MSME credit grew 14.1% in 2024-25 to ₹31.1 lakh crore.
NPAs
- Asset quality strengthened further, with the gross non-performing assets (GNPA) ratio declining to a multi-decadal low of 2.2 % at end-March 2025 and 2.1 % at end-September 2025.
- The capital to risk weighted assets ratio was 17.4 % at end-March 2025 and 17.2 % at end-September 2025.
- Banks are major counterparties in NBFC securitisation, linking bank stability to NBFC asset quality.
Frauds
- Bank fraud cases fell sharply to 5,092 (Apr–Sep 2025) from 18,386 a year ago, but the amount rose to ₹21,515 crore from ₹16,569 crore.
- Frauds of ₹1 lakh and above dropped to 509 cases worth ₹11 crore in 2025-26 so far, versus 11,615 cases worth ₹3,497 crore in 2024-25.
- In 2024-25, banks reported 23,879 frauds worth ₹34,771 crore, up from ₹11,261 crore in 2023-24 despite fewer cases.
- Card & internet frauds accounted for 66.8% of total cases in 2024-25; advances-related frauds formed 33.1% but dominated value.
- Private banks: 59.3% of fraud cases (mostly card/internet). Public sector banks: 70.7% of total fraud amount, largely advances-related.
Indian banks enter FY26 from a position of strength—robust capital, profitability and record-low NPAs—but moderating growth and rising risks in unsecured lending, MSME stress pockets and high-value frauds call for sharper vigilance rather than complacency
2.1.2 NBFCs
NBFCs also performing well—posted double-digit balance-sheet and credit growth, improved asset quality and comfortable capital cushions.
- As on March 2025, there are 15 NBFCs (including four HFCs) in the upper layer category, which are subject to more stringent regulations as compared to smaller NBFCs.
- The upper layer category NBFCs have 30.2% share of total NBFCs’ assets as of March end, while middle layer (ML) NBFCs have 64.6 % share while base layer (BL) NBFCs had a meagre share of 5.2 % in total assets.
- The credit extended by NBFCs has increased to 15 % of GDP as of March 2025 from 14 % a year ago,
- In 2024-25, NBFCs balance-sheet (18.9%) and credit growth (19%) outpaced that of banks. Outstanding loans and advances stood at ₹51.4 lakh crore – (Industry Rs. 22.9; Retail – 16.3; Services 7.4; MSME 4.8)
- Strong deposit growth (despite no insurance) and extreme concentration—five NBFCs hold ~97% of deposits—raise “too-big-to-fail” concerns.
- By March 2025, NBFC credit reached ~25% of bank credit, with faster growth than banks in all segments except agriculture.
- About 25% of NBFC loans are exposure to sensitive sectors (capital markets, real estate, commodities), raising vulnerability concerns.
- Power accounts for 56.1% of NBFC credit to industry—echoing a past stress point for banks.
- Debentures (35.3%) and bank borrowings (37.2%) form ~73% of NBFC funding; higher risk weights curbed bank lending only marginally.
- RoA moderated to 2.2% (from 2.7%), RoE to 10.1%, and NIM to 5.0%, with NBFC-MFIs turning negative amid stress.
- GNPA fell to 2.9% (from 3.5%), NNPA to 1.0%; provision coverage ratio at 66.6% and CRAR at 25.9% (well above 15% norm).
Credit growth is healthy, but RBI must remain vigilant—financial stability should not be compromised by rapid NBFC-led expansion.
2.1.3 Corporates:
- Non-food bank credit accounted for ~55% of total resources to companies (down from 57% a year ago), with non-bank sources now ~45% and rising.
- Firms increasingly rely on commercial papers, bonds and internal accruals, reducing dependence on bank loans despite rate transmission.
- Corporate focus on balance-sheet repair and ample market funding has kept corporate loan growth below overall system credit growth.
- Surge led by record equity issuances (₹1.77 tn IPOs in 2025), higher corporate bond placements, stronger NBFC lending and rebound in short-term external credit.
India’s corporate financing is decisively shifting toward markets and non-banks, but strong bank balance sheets and policy support set the stage for a gradual revival in bank-led credit growth.
2.2 RBI eases capital adequacy norms for NBFC loans to high-quality infrastructure projects.
- High quality would mean –
- Project must be operational for at least one-year post-COD, remain standard in lender books, and comply with all material covenants.
- Borrower revenues must stem from government/PSU/statutory concessions or contracts with protection of rights for the full concession period
- Changes aim to better match risk weights with actual risk in operational infrastructure assets, improving capital efficiency and risk assessment.
- Loans qualify for 75% risk weight after just 2% repayment of sanctioned project debt (vs 5% in draft norms).
- 50% risk weight applies after 5% repayment (vs 10% in draft norms).
- Robust lender safeguards mandated including pari-passu charge and step in rights.
- Adequate arrangements required to meet working capital and future funding needs.
- No additional debt or encumbrance of project cash flows/assets without lender consent.
Overall, the RBI move meaningfully lowers capital costs for NBFC-led infrastructure financing while preserving strong lender safeguards, supporting faster and safer capital deployment into quality projects.
2.3 Key highlights from RBI Financial Stability Report released last week
2.3.1 General
- Lending to NBFCs and unsecured retail grew 8.5% and 6.2% YoY, respectively, by Sep-end 2025.
- Unsecured retail loans accounted for 53.1% of total retail loan slippages of banks as of Sep-end 2025 (vs 51.9% in Sep-end 2024).
- Higher-quality borrowers dominate, accounting for ~69% of such loans for both banks and NBFCs.
- GNPA at 1.8% (retail GNPA 1.1%), GNPA ratio in unsecured retail rose to 107 bps (Sept 2025) from 100 bps a year earlier.
- PSBs: 1.4% (lowest); PVBs: 4.7%: Foreign banks [FBs] : 6.8% Small finance banks [SFBs]: 10.4% (highest)
- Private Banks [PVB] have a higher share (76%) in fresh unsecured slippages and continue to report elevated write-offs (229% of gross NPAs), with recoveries muted
- Gold loans expanding fast: Now 5.8% of total advances of SCBs and NBFCs; below-prime share in NBFC gold loans has declined but remains material (56.8%).
- MSME credit mix: 48.7% super-prime, 28.9% prime, 22.4% subprime borrowers.
- Microfinance: Credit down 9.3%; active borrowers declined by 78 lakhs; Overall stressed asset ratios improved for three consecutive quarters, but borrower indebtedness (loans from ≥3 lenders) inched up in Sept 2025.
While headline asset quality remains stable, rising slippages in unsecured retail loans—especially at private and small finance banks—warrant close monitoring even as underwriting discipline and regulatory curbs gradually restore balance.
2.3.2 Banks – Stress Test outcomes
Stress scenarios
- Adverse 1: softer GDP growth, moderate inflation rise, limited RBI policy space.
- Adverse 2: global trade shock, GDP slowdown, inflation above 6%, repo rate hikes.
Capital adequacy
- Stress tests on 46 banks showed system-level CRAR declining to 12.8% and CET1 to 10.9%, with no bank breaching regulatory minima; PSBs faced the largest impact at 90 bps CRAR drop.
- System CRAR moderates from 17.1% (Sep 2025) to 16.8% (baseline), 14.5% (adverse 1) and 14.1% (adverse 2) by March 2027.
- For SFBs, 2 Std. deviation shock raised GNPA by 390 bps, dropping CRAR by 160 bps, with one bank breaching minima.
Concentration Risk
- Top 3 individual borrower defaults raised system GNPA by 350 bps, reducing Capital Risk Adjusted Ratio [CRAR]/Common Equity Tier [CET1] by 90/80 bps.
- Top 3 groups worsened it to 520 bps GNPA rise and 130 bps capital drop, though no bank fell below minima.
Asset quality
- GNPA ratio improves to 1.9% under baseline but rises to 3.2% (adverse 1) and 4.2% (adverse 2) by March 2027.
- Banking system GNPA at multi-decadal low of ~2.2% (Sep 2025); net NPA at a record low 0.5%.
Liquidity Risk
- Liquidity Coverage Ratio [lCR] stress dropped aggregate from 131% to 116.8% (scenario 2), with 3 banks failing.
- PSBs hit hardest (16.1 pp drop). Equity shocks (55% drop) reduced CRAR by 32 bps.
- UCB stress (205 banks) cut CRAR to 14.2% under severe concentration; one Tier 4 breached 11%.
Core business & growth trends
- Muted y-o-y NII growth in H1 FY26 weighs on profit growth.
- Deposit growth slows to 9.8% y-o-y (Sep 2025), driven by sharp deceleration at private banks. Ongoing shift away from low-cost CASA towards time deposits.
- Credit growth steady at 11.0% y-o-y; private banks offset marginal slowdown at PSBs.
- services and personal loans gain share, while agriculture and industry contract.
Indian banks remain well-capitalised and resilient, with asset quality strong, but profitability and deposit momentum face pressure amid slower growth and rising stress under adverse scenarios.
2.3.3 NBFCs. – Stress Test outcome
Credit growth trends
- Aggregate NBFC credit growth accelerated to 21.3% y-o-y (Sept 2025), driven mainly by conversion of two HFCs into upper-layer NBFCs. – Middle-layer NBFC credit growth continues to weaken.
Sectoral asset quality:
- Asset quality improved across industry, services, and retail; agriculture excluded due to minimal exposure. Within retail, microfinance/SHG loan growth contracted over the last two half-years
Concentration Risk-High
- Default of top 3 individual borrowers → system-level CRAR drops 223 bps; 9 NBFCs fall below the 15% regulatory minimum.
- Default of top 3 group borrowers → CRAR drops 243 bps; 8 NBFCs breach the minimum.
Liquidity stress resilience – Low
- NBFCs facing >20% negative cumulative liquidity mismatch (1-year horizon):
- 3 under baseline, 4 under medium stress,
- NBFC liquidity mismatch exceeded 20% for 7 firms under high stress
Borrowing growth outpaced credit growth; overall asset quality remained stable (March 2025 levels).
Overall, the RBI stress tests highlight that while NBFCs remain resilient with stable asset quality and liquidity buffers, concentration risks at large borrowers could materially erode capital for a subset of entities under extreme stress.
# 3 SEBI
3.1 SEBI Tightens Merchant Banker Regulations (Effective Jan 3, 2026)
- Higher capital norms:
- Category I: Net worth ₹25 cr by Jan 2027 → ₹50 cr by Jan 2028; liquid net worth ₹6.25 cr. → ₹12.5 cr.
- Category II: Net worth ₹7.5 cr. → ₹10 cr; liquid net worth ₹1.875 cr → ₹2.5 cr.
- Reclassification:
- Failure to meet Category I norms → automatic downgrade to Category II.
- Failure to meet Category II norms → barred from new permitted activities.
- Underwriting cap: Total underwriting limited to 20× liquid net worth.
- Certification & compliance:
- Mandatory NISM Series-IX for key employees; enhanced compliance certification for compliance officers.
- Minimum activity threshold:
- 3-year cumulative revenue: ₹25 cr (Category I), ₹5 cr (Category II).
Overall, SEBI’s overhaul raises entry and operating standards, accelerating consolidation while strengthening the resilience and credibility of India’s merchant banking ecosystem.
# 4 Economy
4.1 As per S&P Global release last week
- PMI eased to 55.0 in December from 56.6 (Nov): weakest improvement in two years, but still firmly in expansion and above the long-run average (54.2).
- Output, sales and new orders continued to expand above trend, albeit at a slower pace.
- New export orders grew at the slowest pace in ~14 months; fewer firms reported higher overseas sales, with destinations narrowing to Asia, Europe and the Middle East.
- Business optimism fell to a 3.5-year low, though firms still expect higher output in 2026.
- Employment growth slowed to the weakest pace in the current 22-month hiring cycle, reflecting softer capacity pressures.
- Input and output price inflation remained subdued and below long-run averages, supporting demand and competitiveness.
The PMI points to a measured deceleration, not a loss of momentum—India’s manufacturing growth is increasingly domestically driven and well-placed to navigate global uncertainty.
4.2 As per Govt. publication last week
- India becomes 4th-largest economy: With a GDP of $4.18 trillion, India has overtaken Japan to claim the fourth spot globally.
- India is expected to surpass Germany and become the third-largest economy by 2030, with a projected GDP of $7.3 trillion.
- Global ranking: 1- United States, 2- China, 3- Germany (currently) 4- India (now)
- India is the world’s fastest-growing major economy and is well-positioned to sustain this pace.
- Expansion is primarily domestically driven, led by robust private consumption.
Challenges:
- A population of 1.45 billion now expects better air, mobility, housing—not just headline growth.
- 2026’s real test is distribution of growth, not the size of the economy. Per-capita GDP (~$2,818) still places India among the poorest nations globally.
- Top 10% earn ~60% of income; growth gains are uneven
Looking to 2047: With top-club status achieved, the priority is closing deep structural and social gaps.
- India needs more market orientation, not less, to sustain momentum.
- Convert rapid growth into broad-based, inclusive prosperity across regions, classes, and generations.
- Heavy public investment in health and education is essential to avoid early consumer-demand saturation.
India’s arrival in the global top tier makes closing growth, capability and human-capital gaps by 2047 the real test ahead.
4.3 As per data released by Govt. last week
- IIP growth surged to 6.7% YoY, a 25-month high, rebounding from 0.5% in October and above 5% in November 2024, though below 11.9% in November 2023.
- Manufacturing led the recovery, growing 8% YoY (vs 5.5% a year ago; 2% in October), supported by GST rate rationalisation, festive restocking and demand pickup.
- Infrastructure/construction goods: +12.1%
- Capital goods: +10.4%, signalling continued investment strength
- Consumer durables: +10.3%
- Consumer non-durables: +7.3%, though momentum over Oct–Nov remained weak
- Intermediate goods: +7.3%, indicating steady input flow
November’s IIP spike reflects a manufacturing-led, policy- and festive-driven rebound, but underlying momentum remains moderate with power weakness and export risks tempering the outlook.
4.4 Govt announced last week Two Key Interventions aimed at boosting MSME exports and easing access to trade finance.
- Interest Subvention on Export Credit
- Covers pre- and post-shipment rupee export credit by eligible lenders.
- Applicable to exports under a notified positive list at HS 6-digit level (~75% of India’s tariff lines).
- Base interest subvention: 2.75%.
- Additional incentive for exports to notified under-represented/emerging markets.
- Annual cap: ₹50 lakh per exporter (per IEC) for FY 2025–26.
- Collateral Guarantee Support for MSME Exporters
- Introduced in partnership with CGTMSE to improve access to bank finance.
- Guarantee coverage:
- Up to 85% for Micro & Small exporters.
- Up to 65% for medium exporters.
- Maximum guaranteed exposure: ₹10 crore per exporter per financial year.
Together, these measures sharply lower financing costs and collateral constraints, providing targeted, scalable support to accelerate MSME export growth and market diversification.
# 5 PE VC
5.1 As per report released by Prime Data base last week
- PE/VC firms sold ₹20,643 crore via IPOs in 2025—the highest in four years, second only to the 2021 peak.
- Despite higher exits, PE/VC-backed IPOs fell to 18.45% of listings in 2025, the lowest in over a decade.
- Share of PE/VC-backed IPOs slid from ~62% in 2015 to 36.8% (2023), 26.4% (2024) and 18.45% (2025).
- PE/VC investors backed less than one in five IPOs in 2025, down from one in four in 2024 and one in three in 2023.
- Venture-backed firms like Groww, Lenskart, Urban Company and Ather Energy listed in 2025.
PE/VCs are cashing out at near-peak values even as a maturing Indian market increasingly lists companies that no longer need venture capital to go public
5.2 As per Inc42 Annual Indian Starup Trends Report 2025
- $11 bn + total funding raised (-8% yoy), $ 3 bn median ticket size.
- AI Divergence is real: AI drew 35-40% of US Funding but only 4.5% of India’s 2025 pool
- 1/3rd of Indian startups chose financial efficiency over raising capital
- 92% of founders faced profitability pressure from investors
- 75% of investors now prefer secondary deals or IPOs as exit routes
2025 was not a year of hype. It was a year of reset.