New Delhi: India’s financial system has become more resilient and diverse, driven by rapid economic growth, and regulatory framework in securities markets has been enhanced in line with international practice to manage and prevent emerging risks, the Securities and Exchange Board of India (SEBI) said on Saturday, citing a latest IMF-Financial System Stability Assessment (FSSA) report. 

The markets regulator said, in a statement, that the financial sector in India has shown recovery from various distress episodes of the 2010s and withstood the pandemic well.

“In terms of evolution of the financial sector landscape, the Non-Banking Financial Intermediaries (NBFI) sector has become diverse but more interconnected. Banks and Non-Banking Financial Companies (NBFCs) have sufficient aggregate capital to support moderate lending even in severe macro-financial scenarios,” the SEBI said, citing the IMF report findings.

On regulation and supervision of NBFCs, the IMF acknowledged India’s systematic approach for prudential requirements of NBFCs with scale based regulatory framework. The IMF also appreciated India’s approach on introduction of bank-like Liquidity Coverage Ratio (LCR) for large NBFCs.

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

The report further stated that notable improvements include establishing the Corporate Debt Market Development Fund (CDMDF), introducing swing pricing, and liquidity requirements for bond mutual funds.

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

According to the SEBI, the “FSSA report acknowledges that India’s insurance sector is strong and growing, with a significant presence in both life and general insurance. The sector has remained stable, supported by better regulations and digital innovations”.

The report noted India’s progress in improving oversight, risk management and governance and suggests further steps toward risk-based solvency/supervision frameworks and stronger group supervision. It acknowledged transition plans towards a risk-based approach in the insurance sector. “This reflects India’s commitment to global best practices and a resilient insurance sector,” said the capital markets regulator.

The Financial Sector Assessment Programme (FSAP), a joint programme of the IMF and the World Bank (WB), undertakes a comprehensive and in-depth analysis of a country’s financial sector.