FSB completes peer review of India


The Financial Stability Board (FSB) has published its peer review of India.

The peer review examined two topics relevant for financial stability and important for India:

  • the macroprudential policy framework, and
  • the regulation and supervision of non-banking finance companies (NBFCs) and housing finance companies (HFCs).

The review focused on the steps taken by the authorities to implement reforms in these areas, including with respect to the recommendations in the 2012 Financial Sector Assessment Program (FSAP) report by the International Monetary Fund (IMF) and the World Bank.

The peer review finds that progress has been made on both topics. In particular, the Financial Stability and Development Council (FSDC), its sub-committee and technical groups are well-bedded and discuss a range of financial stability issues. The Reserve Bank of India (RBI) has expanded the use of analytical techniques and stress tests to gauge systemic risks. Progress has been made in addressing data gaps, for example via the creation of a repository on large loans and the collection of data on corporates’ foreign exposures and their hedging. The revisions to the regulatory framework for NBFCs in 2014 streamlined reporting, enhanced prudential requirements, and promoted the development of specialised types of finance. Concerns about the risks from unregulated financial entities and unauthorised financial activities have strengthened the coordination of efforts by the authorities to survey the regulatory perimeter. Finally, the RBI has a broad range of policy tools at its disposal for banks and NBFCs, and has deployed them for macroprudential purposes.

Notwithstanding this progress, the peer review concludes that there is additional work to be done on both topics:

  • On the macroprudential framework, this involves explicitly setting out the roles and responsibilities of the relevant bodies, strengthening financial stability analysis and more closely linking it to decision-making, and enhancing public communication. Much of this work relates to making macroprudential policy-setting more explicit, with clearer boundaries between authorities and with other policies, as well as in balancing the objectives of promoting financial development and inclusion.
  • On the regulation and supervision of NBFCs and HFCs, this involves improving the timeliness and granularity of data collection, enhancing risk assessments, reviewing regularly the regulatory perimeter to ensure that it remains appropriate, and adopting a more activity-based and risk-sensitive framework for these entities.

The peer review report includes recommendations to the Indian authorities in order to address these issues. Many of these tasks are not unique to India, reflecting challenges faced by many other jurisdictions, and need to be considered as part of managing the transition to a more diverse and interconnected financial system.

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FSB completes peer review of India

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