• The Second comprehensive Financial Sector Assessment Program (FSAP) is an assessment of the Indian financial system undertaken by the joint IMF-World Bank team conforming to the highest international standards.
• FSAP, a joint program of the International Monetary Fund (IMF) and the World Bank (WB involved in developing countries and region only), 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 on Jan 15, 2013.
• The FSAP assessment acknowledges that India has recorded strong growth in recent years in both economic activity and financial assets.
• The FSAP report acknowledges many efforts by Indian authorities like:
1. Tackling Non-Performing Assets (NPAs)
2. Recent recapitalization measures for banks and introduction of special resolution regime
3. Formalization of National Pension System (NPS) and making the pension sector regulator statutory
4. Passing of Insolvency and Bankruptcy Code and setting up of Insolvency and Bankruptcy Board of India (IBBI)
5. Initiatives such as ‘no frills’ account (under Jan DhanYojana)
6. Introduction of unique biometric identification number (AADHAR)
• FSAP assessment acknowledges that RBI has made substantial progress in strengthening banking supervision by:
1. Introduction of risk-based supervision in 2013 through a comprehensive and forward-looking Supervisory Program for Assessment of Risk and Capital (SPARC)
2. Asset Quality Review (AQR) and the strengthening of regulations in 2015 leading to improved distressed asset recognition.
3. The Basel III framework and other international norms have been implemented or are being phased in.
• It also notes RBI establishing a new Enforcement Department and revising the Prompt Corrective Action (PCA) framework that incorporates more prudent risk-tolerance thresholds.
• The FSAP recommends that governance and financial operations of PSBs could be improved by developing a strategic plan for their consolidation, divestment, and privatization.