World Bank, IMF hail India’s resilient and inclusive financial system
Description :
The World Bank and IMF note major improvements in India’s financial resilience and inclusion since 2017, citing reforms, digital growth, and sound regulation.
Published on:
12 November 2025 | 08:55 PM (GMT+05:30, IST — India)
Published by: Mr. Dibakar Mandal
Introduction
India’s financial system has evolved into one of the most resilient and inclusive among major emerging economies, according to a joint review conducted by the World Bank and the International Monetary Fund (IMF).
In their latest Financial Sector Assessment Program (FSAP) evaluation, the institutions found that India’s banking and financial markets have grown stronger, more diversified, and better equipped to handle global and domestic shocks since the landmark reforms that began in 2017.
The report highlights how India’s regulatory overhaul—covering banking supervision, non-bank finance, and fintech—combined with digital infrastructure like Unified Payments Interface (UPI) and Jan Dhan–Aadhaar–Mobile (JAM) trinity, has dramatically improved access, efficiency, and transparency in the financial system.
Officials at the IMF called India’s progress “remarkable” for balancing rapid growth, macro-stability, and inclusion, even as the global economy faces turbulence from inflation, debt stress, and geopolitical risks.
Evolution of India’s Financial Sector
When the World Bank and IMF last conducted a full FSAP review of India in 2017, several weaknesses were evident—particularly high levels of non-performing assets (NPAs), capital constraints among public sector banks, and limited depth in corporate bond markets. Since then, India has taken comprehensive measures to address these challenges.
Key milestones since 2017
- Recapitalisation of Public Sector Banks (PSBs): Over ₹3.1 trillion infused by the government between 2017 and 2021, stabilising balance sheets.
- Insolvency and Bankruptcy Code (IBC): Introduced a transparent framework for debt resolution, speeding up recovery and improving lender confidence.
- Financial inclusion drive: Over 480 million Jan Dhan bank accounts opened, integrating millions into formal banking.
- Digital transformation: UPI crossed 14 billion monthly transactions by mid-2025, becoming the backbone of digital payments.
- Regulatory coordination: The Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), and Insurance Regulatory and Development Authority (IRDAI) enhanced oversight collaboration, improving systemic risk monitoring.
These reforms, the assessment notes, have not only reduced vulnerabilities but also expanded the breadth of credit, fostered innovation, and strengthened confidence among foreign investors.
India’s Resilience in Global Context
Despite worldwide financial volatility, India’s system has demonstrated remarkable shock-absorption capacity. During the COVID-19 pandemic and subsequent global monetary tightening cycles, India maintained both liquidity stability and credit growth.
According to IMF data, bank credit growth averaged 14% annually from FY23–FY25, supported by strong domestic demand and well-capitalised lenders.
The World Bank’s analysis emphasised that India’s focus on prudential regulation, combined with the use of real-time digital data, allowed the RBI to act swiftly against potential vulnerabilities—especially in non-banking financial companies (NBFCs) and cooperative banks.
“India’s response to systemic shocks—be it pandemic disruptions or supply-chain stresses—has been among the most agile in the developing world,” noted Ana Palacio, Senior Financial Stability Advisor at the World Bank.
“The integration of digital finance with inclusive policy design sets India apart.”
Inclusiveness and Financial Access
The World Bank–IMF review paid special attention to India’s success in financial inclusion. By linking Aadhaar identification, direct benefit transfers (DBTs), and mobile banking, India achieved near-universal financial access for adults.
The share of adults with a bank account has jumped from 53% in 2014 to over 90% in 2025, one of the fastest inclusion expansions globally.
Meanwhile, digital micro-credit and insurance penetration have also grown. The Pradhan Mantri Jan Suraksha Yojana and PM Fasal Bima Yojana brought insurance and pension benefits to rural households. The combined effect has made India’s financial system not only bigger—but fairer and more participatory.
Risk Management and Future Challenges
While praising the transformation, the IMF and World Bank also flagged emerging risks.
They urged India to strengthen cyber-security frameworks, enhance stress testing for NBFCs, and develop a climate-related financial risk strategy.
The institutions also pointed out that rapid fintech growth—especially in lending apps—needs tighter consumer protection and data privacy safeguards.
“India’s regulatory architecture is forward-looking, but supervision must keep evolving as technology blurs the lines between banks and tech firms,” said Robert Fields, Deputy Director, IMF Monetary and Capital Markets Department.
Nevertheless, both organisations concluded that India’s “institutional and regulatory buffers” are now robust enough to prevent contagion from external shocks.
Global Confidence and Capital Inflows
Improved resilience has already translated into record foreign portfolio and direct investment inflows. India’s stable currency, strong growth trajectory, and consistent monetary policy have increased investor confidence.
According to IMF forecasts, India is set to attract over $90 billion in FDI in FY26, particularly in manufacturing, renewables, and fintech.
The World Bank’s Global Financial Development Report 2025 also ranks India among the top five emerging markets for financial stability and innovation readiness.
The Road Ahead
Experts believe India’s next phase should focus on deepening bond markets, expanding green finance, and enhancing cross-border payment systems.
With the upcoming integration of the Digital Rupee (CBDC) and GIFT City as a global financial hub, policymakers see India’s system transitioning from resilience to leadership.
“India’s evolution from a fragile system in 2017 to a robust, inclusive ecosystem in 2025 demonstrates how reform consistency pays off,” noted Dr. Leena Rajan, senior economist at the Indian Council for Economic Research. “The task now is to sustain transparency, manage fintech risks, and ensure that growth benefits every citizen.”
Conclusion
The World Bank and IMF’s latest assessment affirms that India’s financial system stands strong, adaptive, and future-ready.
Resilience has been built through years of reforms, prudent regulation, and digital empowerment. While the next frontier will demand deeper integration and vigilance against emerging risks, India’s transformation since 2017 represents one of the most successful financial modernization stories in the developing world.
FAQs
1. What did the World Bank and IMF highlight in their assessment of India?
They commended India for building a more resilient, diversified, and inclusive financial system, with better regulation, digital expansion, and higher stability.
2. How has India’s banking system improved since 2017?
Capital infusion, NPA reduction through the IBC, and digital innovation like UPI have transformed India’s banking landscape.
3. What role does digital finance play in resilience?
Digital finance tools like UPI, Aadhaar, and mobile banking improved access, reduced transaction costs, and increased real-time monitoring of financial flows.
4. Are there any concerns raised by the IMF or World Bank?
Yes, they advised stronger cyber-security, consumer protection, and preparedness for climate-related financial risks.
5. What’s next for India’s financial sector?
Experts suggest deepening bond markets, strengthening fintech supervision, and advancing sustainable finance as key next-step priorities.
External Resources & References
- World Bank – India Financial Sector Assessment Program 2025
- IMF – Financial System Stability Assessment: India 2025
- Reserve Bank of India – Financial Stability Report, June 2025
- World Bank Global Financial Development Report 2025
- Reuters – IMF, World Bank hail India’s resilient and inclusive financial system
