The International Monetary Fund (IMF) has suggested that Indian banks adopt the International Financial Reporting Standards (IFRS 9) to strengthen their credit risk management practices. This recommendation is part of the IMF’s Financial System Stability Assessment (FSSA) report, which the Reserve Bank of India (RBI) recently released.
The report stresses the importance of better supervision of individual loans, more accurate collateral valuation, and closer monitoring of groups of interconnected borrowers. It also points out that since the last Financial Sector Assessment Program (FSAP) in 2017, India’s financial system has grown more resilient and diverse, thanks to rapid economic growth. Banks and non-banking financial companies (NBFCs) are well-capitalized and should be able to maintain moderate lending even in tough economic conditions.
The IMF also highlights India’s progress in public digital infrastructure, which has played a key role in improving financial inclusion. The RBI’s Financial Inclusion Index, which stood at 43.4 in 2017, rose to 64.2 by March 2024, reflecting these advancements. Additionally, the report acknowledges the strength and stability of India’s insurance sector, crediting regulatory improvements and digital innovations for its growth.
However, the IMF warns about emerging risks such as cybersecurity threats, climate change, and the potential for financial system disruptions. It recommends stronger data collection and monitoring to better understand and manage climate-related financial risks. The RBI, in response, has reaffirmed its commitment to gradually adopting global best practices and standards while considering India’s specific economic needs.