The Reserve Bank of India (RBI) on Thursday said the Indian economy is well on the path of recovery even though inflationary pressures and geopolitical risks warrant careful handling and close monitoring of the situation.

The RBI's 25th Financial Stability Report (FSR) also said banks as well as non-banking financial institutions have sufficient capital buffers to withstand shocks.

"Notwithstanding the challenges from global spillovers, the Indian economy remains on the path of recovery, though inflationary pressures, external spillovers and geopolitical risks warrant careful handling and close monitoring," the report said.

The report observed that the outlook for the global economy is shrouded by considerable uncertainty because of the war in Europe, front-loaded monetary policy normalisation by central banks in response to persistently high inflation and multiple waves of the coronavirus pandemic.

Regarding the banking sector, it said the Capital to Risk weighted Assets Ratio (CRAR) of Scheduled Commercial Banks (SCBs) rose to a new high of 16.7 per cent while their Gross Non Performing Assets (GNPA) ratio fell to a six-year low of 5.9 per cent in March 2022.

Macro stress tests for credit risk reveal that SCBs would be able to comply with the minimum capital requirements even under severe stress scenarios, it added.