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India needs to bolster level of capitalisation of state-owned banks: IMF

Date: 12 April 2019 Tags: World Economy

International Monetary Fund’s (IMF) Financial Sector Assessment Programme (FSAP) for India has recommended bolstering level of capitalisation of some banks, particularly government-owned banks. This is required considering high level of non-performing loans in India.

Highlights of FSAP for India

It also has recommended resolution and recognition of Non-performing loans as part of process of cleaning up the banking system of non-performing loans. It also acknowledged that some steps that were taken by authorities to boost capital buffers in banks and also to improve governance in state-owned banks that have had some positive impact.

Financial Sector Assessment Programme (FSAP)

  • It is comprehensive and in-depth analysis of country’s financial sector. Its assessments are joint responsibility of the IMF and World Bank in developing economies and emerging markets and of IMF alone in advanced economies.
  • It includes two major components: (i) financial stability assessment, which is the responsibility of the IMF, and (ii) financial development assessment, which is responsibility of World Bank.
  • Two-fold goal of FSAP assessments: Gauge stability and soundness of financial sector and assess its potential contribution to growth and development.