India’s Financial Sector Has Gained Resilience In Last 8 Years, Says Sebi

Market regulator, the Securities and Exchange Board of India (Sebi) has said that the country’s financial system has become more resilient and diverse in the past eight years, driven by rapid economic growth.

Sebi cited the latest Financial System Stability Assessment (FSSA) report published by the International Monetary Fund (IMF) in an official release, and said that the financial sector has managed to recover from distress episodes seen in the 2010s and the Covid-19 pandemic.

Sebi said that while the non-banking financial intermediaries (NBFI) sector has become diverse, it has also become more interconnected. Sebi said that banks and non-banking financial companies (NBFCs) have enough capital to support moderate lending even in adverse macrofinancial scenarios.

It, however, added that NBFCs need to be managed with a scale-based regulatory framework.

Sebi said the IMF had suggested that India should focus on strengthening its credit risk management through adoption of the International Financial Reporting Standard (IFRS 9) and by enhancing supervision over other facets of lending, such as individual loans, collateral valuation, connected borrower groups, large exposure limits, and related-party transactions.

The report also mentioned that the framework for regulating trade in the securities markets has also been enhanced to mitigate risks. The report cited improvements such as the introduction of the Corporate Debt Market Development Fund (CDMDF), swing pricing and liquidity requirements for bond mutual funds.

While the report acknowledged that retail financial inclusion has improved, the IMF recommended measures, such as the strengthening of infrastructures for asset-based and digital lending to increase access to credit for financially underserved sectors.

The report further highlighted that the domestic insurance sector has remained stable, and acknowledged transition plans towards a risk-based approach.

IMF also recommended extensive cybersecurity crisis simulations and stress tests for banks to further strengthen cybersecurity resilience. The IMF concluded that India remains committed to adopting internationally accepted standards and best practices in a phased manner, attuned to domestic needs and economic conditions, wherever necessary.