Mumbai: The International Monetary Fund (IMF) has released a report highlighting the increasing resilience and diversity of India’s financial system, attributing these improvements to the country’s rapid economic growth and successful navigation of the pandemic.
The latest Financial Sector Assessment Program (FSAP) report, a joint initiative of the IMF and World Bank, provides a comprehensive analysis of India’s financial landscape. The assessment, conducted in 2024, reveals significant progress since the previous evaluation in 2017.
According to the IMF, India’s financial system has not only recovered from the distress episodes of the 2010s but has also demonstrated remarkable stability during the recent global pandemic. The report notes the growth of non-banking financial institutions (NBFIs) and market financing, which have contributed to a more diverse and interconnected financial ecosystem.
Stress tests conducted as part of the assessment indicate that the main lending sectors in India are broadly resilient to macrofinancial shocks. Banks and NBFCs are reported to have sufficient aggregate capital to support moderate lending, even under severe macro-financial scenarios.
The IMF acknowledges India’s systematic approach to regulating NBFCs, particularly praising the introduction of a bank-like Liquidity Coverage Ratio (LCR) for large NBFCs. The report also commends enhancements in the regulatory framework for securities markets, which align with international practices in managing and preventing emerging risks.
India’s insurance sector receives positive remarks in the report, described as strong and growing with a significant presence in both life and general insurance. The sector’s stability is attributed to improved regulations and the adoption of digital innovations.
While the report highlights many strengths, it also identifies areas for improvement. The IMF suggests that some banks, particularly public sector banks, may need to strengthen their capital base to support lending in severe scenarios. Additionally, the report recommends expanding cybersecurity crisis simulations and stress tests to include cross-sectoral and market-wide events.
The Reserve Bank of India has welcomed the assessment, stating that it conforms to the highest international standards. The recommendations provided in the FSAP report are expected to guide further improvements in the structure and functioning of India’s financial system.
