Key Facts:
IMF is a major financial agency of the United Nations, and an international financial institution funded by 191-member countries.
It is headquartered in Washington, D.C.
Prime Highlights:
India’s financial system has become more resilient and diverse, driven by rapid economic growth, and has effectively withstood the challenges of the pandemic.
The IMF praised India’s regulatory framework for NBFCs, particularly its scale-based approach and the introduction of bank-like Liquidity Coverage Ratio (LCR) for larger NBFCs.
Key Background:
The International Monetary Fund (IMF) has highlighted the resilience and diversity of India’s financial system in its latest Financial Sector Assessment Program (FSAP) report. Based on an assessment conducted in 2024, the report underscores the progress made by India’s financial sector, which has effectively navigated various challenges, including the global pandemic, and emerged stronger.
According to the IMF’s Financial Sector Stability Assessment (FSSA), India’s financial system has evolved significantly since the last FSAP evaluation in 2017. The country’s financial landscape has become more diversified, with the Non-Banking Financial Intermediaries (NBFI) sector growing both in scope and interconnectedness. The report commends the financial sector’s recovery from the crises of the 2010s and its ability to withstand the impacts of the pandemic. Both banks and Non-Banking Financial Companies (NBFCs) now possess sufficient capital to continue lending, even under severe macroeconomic stress.
The IMF also praised India’s regulatory approach, particularly regarding NBFCs, noting the systematic, scale-based regulatory framework and the introduction of bank-like Liquidity Coverage Ratio (LCR) requirements for larger NBFCs. However, the IMF recommended further strengthening of credit risk management, particularly in the supervision of individual loans, collateral valuation, large exposure limits, and related-party transactions in the banking sector.
The report also highlights significant improvements in the regulation of India’s securities markets, including the establishment of the Corporate Debt Market Development Fund (CDMDF) and the introduction of liquidity requirements for bond mutual funds. These reforms align with global best practices and aim to mitigate emerging risks.
Furthermore, the IMF emphasized the role of public digital infrastructures in improving retail financial inclusion and recommended strengthening the legal and informational frameworks for asset-based and digital lending to enhance access to credit in underserved sectors. While acknowledging that climate change-related financial stability risks are manageable, the IMF emphasized the need for enhanced monitoring and better data coverage to address potential vulnerabilities.
