India’s financial system resilient, diverse: International Monetary Fund (IMF) report

India’s financial system has become more resilient and diverse, supported by rapid economic growth and robust policy frameworks, according to the International Monetary Fund (IMF) Financial Sector Assessment Program (FSAP) report. The assessment highlights that India has recovered from the financial distress episodes of the 2010s and withstood the pandemic effectively. The report notes that non-banking financial institutions (NBFIs) and market financing have expanded, enhancing financial system diversity and interconnectivity. While state-owned financial institutions hold a significant share, stress tests indicate that India’s major lending sectors remain resilient to macro-financial shocks, with banks and NBFIs maintaining adequate capital to sustain moderate lending, even under severe scenarios. However, some non-systemic NBFIs and urban cooperative banks (UCBs) report capital constraints requiring further strengthening. 

The IMF commended India’s regulatory approach to NBFIs, including the scale-based regulatory framework and bank-like Liquidity Coverage Ratio (LCR) for large NBFIs. The report also highlights improvements in securities market regulations, particularly the establishment of the Corporate Debt Market Development Fund (CDMDF). India’s insurance sector remains stable and continues to grow, driven by regulatory advancements and digital innovation. Additionally, the report acknowledges India’s progress in cybersecurity risk management, particularly in the banking sector and financial market infrastructure. However, it recommends expanding cybersecurity crisis simulations and stress testing for a market-wide resilience strategy. The assessment aligns with India’s financial system development goals, reinforcing structural improvements and regulatory enhancements to sustain economic growth. 

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.