Financial Sector Assessment Program (FSAP) :

Why in News ? The World Bank, in its latest Financial Sector Assessment (FSA) report, has stated India achieving its vision to become a $30 trillion economy by 2047 would require further impetus to Financial sector reforms to boost private capital mobilisation.

About  FSAP:

FSAP is a joint initiative by the International Monetary Fund (IMF) and the World Bank.

• It is a comprehensive evaluation of a country’s financial sector.
• Its main Purpose is to  assess financial stability, development, and performance of financial institutions and markets.
• It  was first Introduced in1999.
• India Participation: FSAP assessments in 2001, 2006, 2010, 2017, and 2023/24 (latest).

FSAP aims to:

1. Assess financial stability – Identify vulnerabilities in banks, capital markets, insurance, and other financial institutions.
2. Evaluate regulatory and supervisory frameworks – Whether laws and institutions adequately safeguard the financial system.
3. Encourage reforms – Suggest policy measures to strengthen the financial system.
4. Assess financial inclusion & development – How well the financial system supports economic growth.
5. Benchmark against international best practices – Align domestic standards with global norms.

Components of FSAP:

Financial Stability Assessment

• Stress testing of banks, non-banking financial companies (NBFCs), insurance companies.
• Analysis of systemic risks.

 Financial Sector Development:

• Depth and efficiency of financial markets.
• Access to credit and capital for businesses and households.

Financial Inclusion

• Extent of access to banking services across regions and demographics.
• Integration of digital finance and payment systems.

Regulatory and Supervisory Framework:

• Quality of prudential regulations.
• Effectiveness of central bank oversight.

Key Agencies Involved:

• International Monetary Fund (IMF):
• World Bank
• National Regulators in the country being assessed (e.g., RBI, SEBI in India).

India’s Financial Sector & FSAP Insights (2017 vs 2023/24):

2017 FSAP:

• Highlighted vulnerabilities in public sector banks and stressed need for banking reforms.
• Urged development of capital markets and improvement in financial inclusion.

2023/24 FSAP:

• Recognizes resilience and diversification of India’s financial system.
• India’s financial sector has become more inclusive, with better access to banking and digital financial services.
• Suggests further reforms to mobilize private capital to achieve the goal of $30 trillion economy by 2047.
• Recommends:
  1. Strengthening non-banking financial institutions (NBFCs, insurance, pensions).
  2. Deepening capital markets to support long-term financing.
  3. Improving risk management frameworks.
  4. Facilitating private investment in infrastructure and innovation.

Importance for India:

1. Provides a global benchmark for India’s financial sector.
2. Helps policy makers prioritize reforms for financial stability and growth.
3. Supports long-term economic goals, like becoming a $30 trillion economy by 2047.
4. Guides private capital mobilization to finance infrastructure, technology, and development projects.