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IMF has advised improving credit risk management, RBI says
The IMF made the recommendation in its latest Financial System Stability Assessment (FSSA) report on India, based on an evaluation conducted in 2024
The International Monetary Fund (IMF) has recommended that banks improve credit risk management by adopting new accounting standards and enhancing oversight of loans, collateral valuation, and exposure limits, the Reserve Bank of India said on Monday.
The IMF made the recommendation in its latest Financial System Stability Assessment (FSSA) report on India, based on an evaluation conducted in 2024.
It recommended strengthening credit risk management through the adoption of International Financial Reporting Standard (IFRS) 9, the Reserve Bank said.
India’s insurance sector is known for its stability and growth, supported by enhanced regulations and digital innovations, the central bank said. The IMF recommended further strengthening risk-based solvency frameworks and group supervision to be in line with global best practices.
The IMF report is part of the Financial Sector Assessment Program (FSAP), which is a joint initiative of the IMF and the World Bank (WB).
‘India’s financial system has become more resilient’
While the World Bank’s Financial Sector Assessment (FSA) report is yet to be published, the IMF’s findings show that India’s financial system has become more resilient since the previous assessment in 2017, the RBI said.
According to the IMF, India’s financial sector has recovered from past economic distress and showed resilience during the covid-19 pandemic.
The non-banking financial intermediaries (NBFI) sector has expanded and become more interconnected, while banks and non-banking financial companies (NBFCs) maintain adequate capital to support lending, even during adverse economic conditions.
Regarding NBFC regulation, the IMF recognized India’s structured approach, including a scale-based regulatory framework and the introduction of bank-like liquidity coverage ratio (LCR) requirements for large NBFCs, the RBI noted.
‘Emerging risks need close monitoring’
In the securities market, the IMF said that India’s regulatory advancements aligned with international standards.
The establishment of the corporate debt market development fund (CDMDF), the introduction of swing pricing for bond mutual funds, and measures to enhance investor protection in equity derivatives are some of the country’s key developments.
Emerging risks such as cybersecurity, climate change, and systemic contagion, however, require close monitoring.
While financial risks related to climate change are said to be manageable, the report has called for better to properly assess these risks.
On cybersecurity, the IMF acknowledged India’s progress in overseeing banking sector cybersecurity but recommends expanding crisis simulations and stress tests across financial markets, according to the RBI.
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