IMF Staff Country Reports

This paper highlights Financial System Stability Assessment report of India’s Financial Sector Assessment Program (FSAP). India’s financial system has withstood the pandemic well and has become more resilient since the 2017 FSAP. Nonbank financial institutions—especially nonbank financial companies (NBFCs) providing credit with wholesale financing—and market financing have grown, making the financial system more diverse and interconnected. The role of the state has diminished, yet it remains significant, including in using the financial system to pursue social and public finance goals. Banks and NBFCs are generally resilient to severe macrofinancial solvency and liquidity shocks, but some banks, particularly public sector banks, may need to strengthen their capital base to support lending in such situations. The authorities should manage potential systemic risks from concentrated exposures. The regulations of state-owned NBFCs should be aligned with those of the private sector, especially given that state-owned NBFCs are currently exempt from large exposure limits.