Summary:
India's financial system has grown more resilient and diverse, bolstered by robust economic growth and effective policy measures, according to the International Monetary Fund (IMF) Financial Sector Assessment Program (FSAP) report. The IMF acknowledges that India has successfully navigated past financial challenges from the 2010s and managed the pandemic's impact. The report highlights the expanded role of non-banking financial institutions (NBFIs) and market financing, contributing to a more interconnected and diversified financial landscape. Despite the dominant presence of state-owned financial institutions, stress tests confirm the resilience of major lending sectors, with banks and NBFIs maintaining sufficient capital even under severe economic conditions. However, the report points out capital constraints among certain non-systemic NBFIs and urban cooperative banks (UCBs), recommending further strengthening in these areas.
The IMF praised India's regulatory advancements for NBFIs, specifically the scale-based regulatory framework and bank-like Liquidity Coverage Ratio (LCR) for large entities. It also acknowledged improvements in securities market regulation, including the establishment of the Corporate Debt Market Development Fund (CDMDF). Additionally, the insurance sector continues to grow, driven by digital innovation and evolving regulations. Cybersecurity progress within India's financial sector also received recognition, particularly in banking and financial market infrastructure. The IMF suggests further expansion of cybersecurity crisis simulations and stress testing to enhance market-wide resilience. Overall, the report emphasizes that India's financial sector is well-aligned with the nation's economic development goals, with ongoing structural and regulatory improvements ensuring sustained financial stability and growth.
Source: IBEF
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