The International Monetary Fund (IMF) has called on the Government of India to reduce its stakes in the state-run banks under a series of recommendations following a financial system stability assessment of the country.

The report urged the policy makers to provide greater independence to the Reserve Bank of India, the central bank of the country, by authorising more supervisory and regulatory powers.

It also appreciated the government’s $32bn recapitalisation plan for large state-controlled lenders dogged by soured corporate loans. However, it also stated that the injection must be supported with additional steps of restructuring the banks, enhance corporate governance and reduce government stake in the lenders.

Indian banks reportedly have the highest levels of debt among any emerging market.

The latest financial stability report also proposed to reduce statutory liquidity ratio, the minimum amount of investment in government securities that banks are required to hold.

If implemented, the step may boost system’s capacity to pump more money into the country’s economy.

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The report also took stock of the considerable progress made by India in strengthening financial sector as well as identified potential scope of improvement in the banking sector.