India seeks financial sector audit by IMF, World Bank

After carrying out a comprehensive health check-up of the financial sector in 2009, India has sought an assesment under the Financial Sector Assessment Programme (FSAP) of the International Monetary Fund (IMF) and the World Bank.

"India did a self-assessment (by the Committee on Financial Sector Assessment, or CFSA) of its financial sector in 2009. This has given us the confidence to get our financial sector evaluated by international financial institutions like IMF and the World Bank. We have voluntarily sought a full-fledged Financial Sector Assessment Programme," Finance Minister Pranab Mukherjee said at the second International Finance Conference at the Indian Institute of Management, Calcutta.

Referring to the Financial Stability and Development Council (FSDC), Mukherjee said the government would set up a Financial Sector Legislative Reforms Commission to rewrite and clean up financial sector laws.

"Without prejudice to the autonomy of market regulators, FSDC will undertake macro-prudential supervision of the economy, including functioning of large financial conglomerates, and address inter-regulatory coordination issues," he said.

FSAP, established in 1999, is a comprehensive analysis of a country's financial sector. In developing and emerging market countries, FSAP assessments are conducted jointly with the World Bank.

In these countries, FSAP assessments include two components: a financial stability assessment, which is the responsibility of the Fund, and a financial development assessment, the responsibility of the World Bank.

India's first self-assessment of its financial sector was carried out by CFSA, set up by the Indian government and the Reserve Bank of India in September 2006.

The report, which came out in 2009, stated that India's financial sector was generally sound, resilient and fairly liquid.

It pointed out corporate governance in the co-operative sector, funding constraints of non-banking financial companies and lack of up-to-date data to gauge household indebtedness as concerns.

Source of worry

Meanwhile, Mukherjee said, "Major emerging market economies, like India and China, are experiencing robust growth, though surge in capital inflows and inflation, including from the hardening of global commodity price, is a source of worry...India is back on high growth trajectory, though inflation is still a concern."

Soaring onion and vegetable prices led to a sharp rise in the food price index to 18.32 per cent for the week ended December 25.

"We have been more fortunate in surviving the crisis without major disruptions and have recovered our growth momentum much faster than most others. The concern on inflation remains. India's growth momentum, to some extent, is affected by developments in the western world. A faster recovery in the west is in the interest of all," said Mukherjee.

In the first half of 2010-11, the Indian economy grew 8.9 per cent.