IMF praises India's resilient and diverse financial system

India's financial system has been found to be resilient and diverse, according to a new report from the International Monetary Fund (IMF). The report highlights significant changes in the system since 2017, particularly in how it has adapted during the pandemic. Non-Banking Financial Institutions (NBFIs) and increased market financing have diversified India's financial landscape. Despite this progress, some vulnerabilities remain, especially in certain banks and NBFIs. The regulatory framework around securities and insurance markets has also seen improvements. The Reserve Bank of India welcomed the IMF's findings, noting the assessment's high international standards. The report indicates that India's financial system has bounced back from past challenges and has proven sturdy throughout the pandemic. Stress tests by the IMF show that most lending sectors are resilient to macro-financial shocks. However, a minority of public sector banks may need to boost their capital base to sustain lending during tough times. A few non-systemic NBFIs and urban cooperative banks are facing challenges with capital levels. On a positive note, vulnerabilities related to short-term liquidity are mostly under control. The IMF praised India's regulatory approach, especially for NBFIs, and noted the positive impact of new regulations on the insurance and corporate debt markets. In the area of cybersecurity, the IMF acknowledged the progress made in oversight but suggested more extensive stress tests to further solidify resilience across the financial sector. Overall, the report illustrates a strong and progressing financial system in India.