WORLD BANK URGES INDIA TO BOOST FINANCIAL SECTOR REFORMS FOR VISION 2047

WORLD BANK URGES INDIA TO BOOST FINANCIAL SECTOR REFORMS FOR
VISION 2047

Background

• The World Bank (WB) has released its latest Financial Sector Assessment (FSA) report on India.
• It says that if India wants to achieve its dream of becoming a $30 trillion economy by 2047, it must continue and strengthen financial sector reforms — especially those that help attract more private investment.

WHAT THE REPORT SAYS?

• Progress since 2017:
  • India’s financial system has become more resilient (stronger), diversified (more variety), and inclusive (reaching more people) compared to 2017.
  • Reforms have helped India bounce back from economic challenges of the 2010s and the COVID-19 pandemic.
• Banking and NBFCs (Non-Banking Financial Companies):
  • he WB praised India for:
    • Expanding regulation over cooperative banks,
    • Tightening key prudential rules (rules that ensure financial institutions stay safe and sound), and
    • Reorganizing regulatory departments to improve supervision.
  • It also appreciated India’s scale-based regulation for NBFCs — meaning, rules that vary based on the size and type of NBFC.
  • However, it recommended strengthening credit risk management — basically, improving how banks and NBFCs handle loan risks.
• Capital Markets (Stock Market, Bonds, etc.):
  • India’s capital markets have grown from 144% of GDP (2017) to 175% of GDP
  • This growth was supported by:
    • Strong market infrastructure,
    • A wide investor base, and
    • Reforms like better collateral management, mutual fund rules, and sustainable investment frameworks.
  • The WB suggested new ideas to attract more capital:
    • Create credit enhancement mechanisms (ways to make investments safer),
    • Set up risk-sharing facilities, and
    • Develop securitization platforms (systems to bundle and sell financial assets).
  • Oversight and Investor Protection:
    • The WB said India’s securities market oversight (supervision) is strong.
    • But it suggested:
      • A more integrated approach to monitor risks in mutual funds, and
      • Stronger self-regulatory organizations (SROs) to ensure fair practices.

ABOUT FINANCIAL SECTOR ASSESSMENT PROGRAM

• It is a joint program of the International Monetary Fund (IMF) and the World Bank, started in 1999.
• It gives a comprehensive review of a country’s financial sector, checking:
  • How stable and resilient it is,
  • How strong its regulation and supervision are, and
  • How well it can handle financial crises.

WHY THIS MATTERS?

• A strong and well-regulated financial sector is key for India’s economic growth.
• By continuing reforms, India can:
  • Mobilize more private capital,
  • Build investor confidence, and
  • Stay on track toward its Vision 2047 goal of becoming a $30 trillion economy.

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