The World Bank has released its India Financial Sector Assessment (FSA) Report, following the joint Financial Sector Assessment Program (FSAP) conducted by the International Monetary Fund (IMF) and the World Bank earlier this year. The IMF had earlier published the corresponding Financial System Stability Assessment (FSSA) in February 2025.
The FSA report commended the Reserve Bank of India (RBI) for significantly expanding its regulatory oversight over cooperative banks since the last FSAP in 2017.
The central bank has unified regulation and supervision across all entities, including Urban Cooperative Banks (UCBs), and established an enforcement department to ensure consistent penal action for violations.
According to the report, the UCB sector remains broadly resilient, maintaining a healthy aggregate Capital Adequacy Ratio (CAR) of 31 percent under stress scenarios.
However, the assessment flagged that some UCBs remain undercapitalized, and under adverse conditions, 20–22 UCBs-representing about 10 percent of the sector’s assets- could fall below the minimum regulatory capital requirements. The shortfall is mainly attributed to higher loan loss provisions.
The RBI’s measures to strengthen cooperative bank regulation, improve supervisory efficiency, and tailor cybersecurity frameworks for smaller banks have been widely appreciated.
The report noted that cooperative banks’ growing digital presence and their integration into payment systems have made it necessary to enhance cyber resilience. The RBI has conducted phishing simulations, cyber drills, and IT concentration risk assessments to mitigate threats.
The World Bank report suggests that cyber resilience could be further strengthened through sector-wide crisis simulations and setting international benchmarking metrics for recovery time objectives.
The FSA also recognized the key role of cooperative and regional banks in supporting India’s Priority Sector Lending (PSL) objectives. Smaller institutions such as UCBs and Regional Rural Banks (RRBs) continue to exceed their higher PSL targets-up to 75 percent of total lending-thereby advancing financial inclusion and rural credit delivery. However, these entities have also reported rising compliance costs in meeting PSL norms.
The comprehensive assessment by the World Bank and IMF thus presents a balanced picture-acknowledging India’s strong cooperative banking network and the RBI’s progressive oversight, while highlighting the need for continued focus on capital strengthening, risk governance, and digital resilience across the cooperative spectrum.
