SEBI: India’s Financial System Shows Greater Resilience and Diversity

Synopsis

India’s financial system has grown increasingly resilient and diverse, as per SEBI, supported by economic growth and enhanced regulatory frameworks. The latest IMF-FSSA report highlights the improvements in risk management and governance within India's financial sector, showcasing its commitment to global best practices.

Key Takeaways

India's financial system has become more resilient.
The regulatory framework is aligned with international standards.
NBFIs are diverse but interconnected.
IMF praises India's insurance sector stability.
Adoption of risk-based solvency frameworks is recommended.

New Delhi, April 5 (NationPress) India’s financial system has become more resilient and diverse, spurred by swift economic growth, with an enhanced regulatory framework in securities markets aligned with international practices to effectively manage and mitigate emerging risks, as stated by the Securities and Exchange Board of India (SEBI) on Saturday, referencing a recent IMF-Financial System Stability Assessment (FSSA) report.

According to the markets regulator, the financial sector in India has demonstrated recovery from various distress episodes experienced during the 2010s and has shown resilience throughout the pandemic.

“In terms of the evolution of the financial sector landscape, the Non-Banking Financial Intermediaries (NBFI) sector has become diverse yet more interconnected. Both banks and Non-Banking Financial Companies (NBFCs) possess adequate aggregate capital to facilitate moderate lending even amidst severe macro-financial conditions,” the SEBI reported, referencing findings from the IMF.

Regarding the regulation and oversight of NBFCs, the IMF recognized India’s systematic approach regarding prudential requirements with a scale-based regulatory framework.

The IMF also commended India’s initiative on the implementation of a bank-like Liquidity Coverage Ratio (LCR) for substantial NBFCs.

For bank supervision, the IMF recommended enhancing credit risk management through the adoption of “IFSR 9” and upgrading supervision over individual loans, collateral valuation, connected borrower groups, large exposure limits, and related-party transactions.

The report noted significant advancements, including the establishment of the Corporate Debt Market Development Fund (CDMDF), the introduction of swing pricing, and liquidity requirements for bond mutual funds.

The regulatory scope has been broadened to encompass emerging areas such as sustainability and investor protection measures for rapidly growing equity derivatives products, according to the IMF-FSSA report.

As per SEBI, the “FSSA report confirms that India’s insurance sector is robust and expanding, with a notable presence in both life and general insurance. The sector has maintained stability, bolstered by improved regulations and digital innovations.”

The report highlighted India’s progress in enhancing oversight, risk management, and governance, recommending further steps toward risk-based solvency and supervision frameworks along with stronger group supervision. It acknowledged ongoing transition plans toward a risk-based approach within the insurance sector.

“This underlines India’s commitment to global best practices and a resilient insurance sector,” stated the capital markets regulator.

The Financial Sector Assessment Programme (FSAP), a collaborative initiative of the IMF and the World Bank (WB), conducts a thorough and detailed analysis of a nation's financial sector.