The International Monetary Fund (IMF) has urged Indian banks to adopt global standards for credit risk management, including the implementation of International Financial Reporting Standards (IFRS 9). The recommendation is part of the IMF’s Financial System Stability Assessment (FSSA) report, which was released by the Reserve Bank of India (RBI) on March 24, 2025. The IMF report also calls for enhanced supervision of individual loans, collateral valuation, and connected borrower groups.
The FSSA is part of the Financial Sector Assessment Program (FSAP), a joint initiative between the IMF and World Bank. The FSAP provides a detailed analysis of a country’s financial sector, and the latest assessment for India follows up on the previous FSAP conducted in 2017. According to the RBI, the recommendations in the FSSA aim to improve the structure and functioning of India’s financial system, with many of the suggestions aligning with the plans of local authorities and regulators.
In response to the IMF’s findings, the RBI emphasized India’s ongoing commitment to adopting internationally accepted financial standards in a phased manner, tailored to domestic economic conditions. The RBI also noted that the IMF’s report highlights the increasing resilience and diversity of India’s financial system, which has strengthened following the challenges of the 2010s and has shown robustness in response to the pandemic.
The IMF acknowledged the growing diversity and interconnectedness within India’s financial sector, noting that both banks and non-banking financial companies have sufficient capital to support moderate lending even in challenging macro-financial environments. Furthermore, the IMF recognized the improvement of India’s public digital infrastructure, which has contributed to greater retail financial inclusion. According to the RBI’s Financial Inclusion Index, the country’s financial inclusion has increased, with a score of 64.2 in March 2024, up from 60.1 the previous year.
The IMF also recommended enhancing access to credit for financially underserved sectors by strengthening the legal, tax, and informational infrastructure for asset-based and digital lending. In addition, the RBI highlighted the IMF’s recognition of India’s growing insurance sector, which has benefited from improved regulations and digital innovations. The report also recommended further steps toward risk-based solvency and group supervision frameworks in the insurance sector.
Emerging risks, such as cybersecurity, climate change, and system-wide contagion, were also identified by the IMF. While financial stability risks from climate change are considered manageable, the IMF suggested that more detailed data be collected to better assess climate-related financial risks. Regarding cybersecurity, the IMF acknowledged India’s progress in overseeing risks, particularly for banks, and recommended expanding crisis simulations and stress tests for cross-sectoral and market-wide events to further bolster cybersecurity resilience.
The FSSA report reflects India’s efforts to align with global best practices while addressing emerging challenges in the financial sector.
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