IMF Report: ‘India’s financial system stronger and more diverse than ever’, IMF’s India-FSSA report released

New Delhi| According to a report by the International Monetary Fund (IMF), India’s financial system has become stronger and more diversified than before. It has also successfully faced the pandemic due to the rapidly growing economy. The study was conducted under the Financial Sector Assessment Program (FSAP) jointly conducted by the IMF and the World Bank. IMF has released the India-FSSA report, while the World Bank report is coming soon.

According to the report, India’s financial system has become stronger after 2017. It has recovered from the financial problems of the 2010’s and was also able to withstand the impact of the pandemic. Non-banking financial companies and market financing have expanded, making the whole system more diversified and connected. However, the participation of public sector banks and financial institutions still remains large.

Status and capital needs of banks
The IMF says Indian banks and non-banking financial companies hold sufficient capital under normal economic conditions and may be able to provide limited amounts of credit even in difficult times. But some public sector banks (PSBS) may need to strengthen their capital. Some urban co-operative banks (UBCS) and small non-banking financial companies may be in a weak position. However, the threat of short-term cash crunch is currently under control.

Strong surveillance on non-banking financial companies and stock market
The IMF said that the scale-based regulatory regime created for non-banking financial companies in India is effective. Also, implementation of bank-like LCR for large non-banking financial companies was appreciated. India’s regulatory framework has been improved to prevent risks associated with the stock market. The establishment of the Corporate Debt Market Development Fund (CDMDF) has been considered an important step.

The report said India’s insurance sector (both life and general insurance) is stable and growing rapidly. Digital innovations and better regulation play an important role in this. Also, the IMF analyzed the cyber security systems of banks, financial markets and other important institutions in India. It was found that India has made considerable progress in cyber security surveillance for banks. However, the entire financial system needs large-scale cyber security tests to prevent any major cyber attacks in the future.