India's Financial System resilient and diverse: IMF report

India’s financial system has become increasingly resilient and diverse, driven by rapid economic growth, and has withstood the challenges posed by the pandemic, according to a report by the International Monetary Fund (IMF).
The report was part of the Financial Sector Assessment Program (FSAP), a joint initiative between the IMF and the World Bank (WB), which provides an in-depth analysis of a country's financial sector.
The latest India Financial Sector Stability Assessment (India-FSSA) report, based on assessments carried out in 2024, highlights positive developments in the financial system, while the World Bank’s Financial Sector Assessment (FSA) report is yet to be published, according to news agency PTI.
The Reserve Bank of India welcomed the IMF’s evaluation, acknowledging the high international standards of the assessment in a release issued on Monday.
The IMF report emphasized that since the last FSAP assessment in 2017, India’s financial system has evolved to become more resilient and diverse. The system has shown recovery from distress episodes of the 2010s and proved resilient during the pandemic. The growth of Non-Banking Financial Institutions (NBFIs) and increased market financing have further diversified and interconnected the financial system. Despite these changes, state-owned financial institutions continue to hold a significant share.
Stress tests conducted by the IMF indicated that the primary lending sectors are generally resilient to macro-financial shocks, though some areas still show weaknesses. Banks and NBFCs are adequately capitalized to support moderate lending even in severe macro-financial scenarios. However, some public sector banks (PSBs) may need to strengthen their capital base to maintain lending in challenging conditions.
The report also noted vulnerabilities in a few non-systemic NBFCs and urban cooperative banks (UCBs) that have negative or below-minimum capital levels, even under baseline conditions. On a positive note, vulnerability to short-term liquidity stress is largely contained.
On the regulation and supervision front, the IMF praised India’s systematic approach to prudential requirements for NBFCs, particularly the scale-based regulatory framework. The IMF also commended the introduction of a bank-like Liquidity Coverage Ratio (LCR) for large NBFCs.
The report highlighted notable improvements in India’s regulatory framework for securities markets, aligning it with international practices. Key initiatives, such as the establishment of the Corporate Debt Market Development Fund (CDMDF), were acknowledged for enhancing market stability.
India's insurance sector was also recognized as strong and growing, with significant presence in both life and general insurance. The sector's stability is attributed to better regulations and digital innovations.
In terms of cybersecurity, the IMF assessed the frameworks in place for banks, financial market infrastructure (FMI), critical information systems, and other relevant players in the securities market. While the report noted that Indian authorities have made progress in cybersecurity risk oversight, particularly for banks, it recommended expanding cybersecurity crisis simulations and stress tests to cover cross-sectoral and market-wide events to further enhance resilience.