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India’s financial system has grown stronger, but IMF says banks need to align more closely with international norms like IFRS 9.
In its latest Financial System Stability Assessment (FSSA), the International Monetary Fund (IMF) asked Indian banks to adopt global credit risk management practices like IFRS 9 and improve oversight of individual loans and borrower groups. The Reserve Bank of India (RBI) released the report, which also highlights India’s progress in digital inclusion, insurance regulation, and financial system resilience since 2017.
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IMF’s Key Message: Strengthen Credit Risk Framework
The International Monetary Fund (IMF) has advised Indian banks to improve the way they manage credit risk. In its Financial System Stability Assessment (FSSA), the IMF recommended the adoption of IFRS 9—a globally used accounting standard—to better assess credit losses and risks.
It also said banks should focus more on:
- Better supervision of individual loans
- Transparent collateral valuation
- Understanding risk in connected borrower groups
The Reserve Bank of India (RBI) released this report on Monday, highlighting that the suggestions are in line with India’s own development plans for the financial sector.
India’s Financial System Has Grown Stronger
According to the IMF, India’s financial system has become more resilient and diverse since the last FSSA in 2017. The sector has survived multiple challenges, including the pandemic. The IMF praised India’s public digital infrastructure and said it has played a big role in boosting retail financial inclusion.
The RBI’s Financial Inclusion Index showed strong progress:
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2017: 43.4
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2023: 60.1
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2024: 64.2
Under the Pradhan Mantri Jan-Dhan Yojana, over 548 million bank accounts have been opened, with a total balance of ₹2.45 trillion.
Insurance Sector: Stable and Growing
The IMF also noted that India’s insurance sector is strong, with solid growth in both life and general insurance. It praised improvements in:
- Regulation
- Risk management
- Governance
It also suggested that India should continue moving toward a risk-based solvency and supervision system for insurance companies.
Emerging Risks to Watch
The report also identified areas needing more attention:
- Cybersecurity – India has improved, but wider simulations and cross-sector stress tests are needed.
- Climate Change – Current risks are manageable, but need closer monitoring and better data.
- System-Wide Contagion Risks – More analysis required to prevent spillovers across sectors.
RBI’s Response
RBI said it is fully committed to adopting international best practices at a pace that suits India’s local needs and conditions. The FSSA findings, according to RBI, are already aligned with the country’s broader vision for a stronger and more inclusive financial ecosystem.
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