IMF's FSSA report says India's financial system resilient, diverse

IMF’s stress tests showed the main lending sectors in the country are broadly resilient to macro-financial shocks, despite some weak tails.

Banks and non-bankng financial corporations (NBFCs) have sufficient aggregate capital to support moderate lending even in severe macro-financial scenarios. "But several banks, particularly PSBs [public sector banks], may need to strengthen their capital base to support lending in such situations,” the report said.

“Weak tails comprise a few non-systemic NBFCs and urban cooperative banks (UCBs) that report below minimum or negative capital even in the baseline. Vulnerability to short-term liquidity stress is generally contained," it noted.

Acknowledging India's systematic approach to prudential requirements of NBFCs with the scale-based regulatory framework, the IMF appreciated the country’s approach to the introduction of a bank-like liquidity coverage ratio (LCR) for large NBFCs.

It also acknowledged that the regulatory framework in securities markets has been enhanced in line with international practice to manage and prevent emerging risks. Notable improvements include establishing the Corporate Debt Market Development Fund (CDMDF).

The IMF found that Indian authorities have advanced cybersecurity risk oversight, especially for banks. However, it stated that extensive cybersecurity crisis simulations and stress tests for banks could be expanded for cross-sectoral and market-wide events to further strengthen cybersecurity resilience.

It recommended that the Indian government should further improve the structure and functioning of its financial system.

The Reserve Bank of India welcomed the report.

ALCHEMPro News Desk (DS)