The International Monetary Fund (IMF) and World Bank (WB) has released the Financial System Stability Assessment (FSSA) and Financial Sector Assessment (FSA) respectively.
It was second comprehensive Financial Sector Assessment Program (FSAP) of Indian financial system undertaken by the joint IMF-World Bank team conforming to the highest international standards.
Financial System Stability Assessment (FSSA)
FSAP is joint program of IMF and WB involved in developing countries and region only. It undertakes a comprehensive and in-depth analysis of a country’s financial sector. It is conducted every five years. Last FSAP for India was conducted in 2011-12 and the report was published by IMF in January 2013.
Highlights of 2017 FSAP
The FSAP assessment acknowledges India’s strong growth in recent years in both economic activity and financial assets. It also acknowledges many efforts undertaken by India like tackling Non-Performing Assets (NPAs), recent recapitalization measures for banks and introduction of special resolution regime, formalization of National Pension System (NPS) and making the pension sector regulator statutory.
It also acknowledged India’s efforts towards passing of Insolvency and Bankruptcy Code and setting up of Insolvency and Bankruptcy Board of India (IBBI) and initiatives such as ‘no frills’ account (under Jan DhanYojana) and introduction of unique biometric identification number (AADHAR).
It also acknowledged RBI’s substantial progress made in strengthening banking supervision by introducing of risk-based supervision in 2013 through comprehensive and forward-looking Supervisory Program for Assessment of Risk and Capital (SPARC) and Asset Quality Review (AQR) and strengthening of regulations in 2015 leading to improved distressed asset recognition.
It also acknowledged RBI’s Basel III framework and other international norms have been implemented or are being phased in. It acknowledges RBI’s move of establishing new Enforcement Department and revising Prompt Corrective Action (PCA) framework that incorporates more prudent risk-tolerance thresholds. It has recommended that governance and financial operations of Public Sector Banks (PSBs) can be improved by developing strategic plan for their consolidation, divestment, and privatization.