Financial sector’s report card reveals regulatory gaps

The quinquennial report cards on India’s financial sector have been issued and they present a disturbing picture.

- RAJRISHI SINGHAL

The World Bank's Financial Sector Assessment and the International Monetary Fund’s (IMF) Financial System Stability Assessment were released during October and February 2025, respectively. Both reports have pointed out critical, strategic gaps in the regulatory frameworks across the financial sector's different segments, thereby raising multiple red flags.

In the aftermath of the 2008 financial crisis, both the Bank and IMF have jointly started undertaking a comprehensive study of the financial sector in select countries, especially those with systemically important financial sectors. The study is mandatory every five years in 32 select countries, including India. The joint exercise is called Financial Sector Assessment Program, with both the multilateral institutions coming out with their individual reports.

The Bank's report states that India’s financial system has become more resilient, diversified and inclusive. It states: “Total financial sector assets reached 187% of GDP, with non-banking financial institutions and market financing growing at a much faster pace than banks, accounting for 44% of financial sector assets in 2024 (compared to 35% in 2017)...Stress tests suggest that credit institutions are broadly resilient to macro-financial shocks, despite some weak tails.”