The large-scale electric vehicle penetration into the grid and the volatile nature of the electric vehicle loading adversely affect grid stability. This paper presents a novel index-based droop scheme for improving the performance of the hybrid AC/DC microgrid under volatile loading conditions. The novelty of the proposed control scheme is that the adaptiveness in selecting active droop gain based on the volatile stability index generates an accurate power reference rather than a constant power reference as in conventional droop gain methods. The state–space modelling of the proposed controller and index-based approach is used to determine the theoretical stability margin. The simulation experiment results agree with the theoretical stability margin limit. The efficacy of the control scheme is validated using real-time experiments on a hardware-in-the-loop real-time simulator, OPAL-RT. The results show that the proposed control scheme improves the performance of the hybrid AC/DC microgrid by maintaining the frequency/voltage fluctuations in the AC and DC sub-grids within the acceptable operating limits of ± 2% and ± 10% as per IEEE 1547 standards. As a result, the percentage improvement in voltage profile is 2.68% at the AC sub-grid and 5.55% at the DC sub-grid. • A novel stability index to reflect volatile loading conditions of HMG. • HMG stability enhancement using HVI-based VSM-V droop controller. • Mathematical modelling and analysis of VSM-V droop scheme. • Real-time experimental verification using OPAL-RT.