India: Financial Sector Assessment Program-Financial System Stability Assessment
IMF Staff Country Reports, February 28, 2025
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Bibliographic details
- Published: February 28, 2025
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798229001748.002
Summary
- 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.
Key findings and vulnerabilities
- Resilience: India’s financial system has become more resilient since the 2017 FSAP.
- Sector evolution: Growth of nonbank financial institutions and market financing has increased diversity and interconnectedness in the financial system.
- State role: The state’s role has diminished but remains significant for social and public finance objectives.
- Bank vulnerability: Some banks, particularly public sector banks, may need to strengthen their capital base to support lending under severe macrofinancial shocks.
- Systemic risk: Potential systemic risks from concentrated exposures need active management.
- Regulatory gap: State-owned NBFCs are exempt from large exposure limits, indicating a need to align their regulation with private-sector NBFCs.
Policy recommendations and considerations
- Strengthen capital buffers for banks, with attention to public sector banks, to ensure capacity to support lending in severe macrofinancial solvency and liquidity shocks.
- Manage potential systemic risks arising from concentrated exposures across the financial system.
- Align regulations of state-owned NBFCs with those of the private sector, given current exemptions from large exposure limits.
- Monitor and address interconnectedness stemming from growth in NBFCs (especially wholesale-financed credit providers) and market financing.
Publication and metadata
- Publication date: February 28, 2025
- Pages: 103
- Volume: 2025
- Issue: 055
- Series: Country Report No. 2025/055
- DOI: https://doi.org/10.5089/9798229001748.002
- Stock No: 1INDEA2025002
- ISBN: 9798229001748
- ISSN: 1934-7685
- Subject: Anti-money laundering and combating the financing of terrorism (AML/CFT), Credit, Crime, Financial institutions, Financial sector policy and analysis, Financial sector stability, Money, Mutual funds, Nonbank financial institutions
- Keywords: Anti-money laundering and combating the financing of terrorism (AML/CFT), coverage ratio, Credit, Financial sector stability, FSAP finding, Global, liquidity support, market financing, Mutual funds, NBFC liquidity stress test result, Nonbank financial institutions, policy option
International Monetary Fund. Monetary and Capital Markets Department "India: Financial Sector Assessment Program-Financial System Stability Assessment", IMF Staff Country Reports 2025, 055 (2025).
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