FINANCIAL AND BANKING SECTOR REFORMS
The last decade witnessed the maturity of India's financial markets. Since 1991, government of India took major steps in reforming the financial sector of the country.
The important achievements in the following fields
is discussed under serparate heads:
• Financial markets
• Regulators
• The banking system
• Non-banking finance companies
• The capital market
• Mutual funds
• Overall approach to reforms
• Deregulation of banking system
• Capital market developments • Consolidation imperative
Now let us discuss each segment seperately.
Financial Markets
In the last decade, Private Sector Institutions played an important role. They grew rapidly in com¬mercial banking and asset management business. With the openings in the insurance sector for these institutions, they started making debt in the market.
Competition among financial intermediaries gradually helped the interest rates to decline. Deregu¬lation added to it. The real interest rate was main¬tained. The borrowers did not pay high price while de¬positors had incentives to save. It was something be-tween the nominal rate of interest and the expected rate of inflation
Regulators
The Finance Ministry continuously formulated major policies in the field of financial sector of the country. The Government accepted the important role of regulators. The' Reserve Bank of India (RBI) has be¬come more independent. Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority (IRDA). became important institutions. Opinions are also there that there shou'ld be a super-regulator for the financial services sector instead of multiplicity of regulators.
The Banking System
Almost 80% of the business are still controlled by Public Sector Banks (PSBs). PSBs are still dominat¬ing the commercial banking system. Shares of the lead¬ing PSBs are already listed on the stock exchanges.
The RBI has given licences to new private sector banks as part of the liberalisation process. The RBI has also been granting licences to industrial houses. Many banks are successfully running in the retail and consumer segments but are yet to deliver services to industrial finance, retail trade, small business and ag¬ricultural finance.
The PSBs will play an important role in the in¬dustry due to its number of branches and foreign banks facing the constrait of limited number of branches. Hence, in order to achieve an efficient bank¬ing system, the onus is on the Government to encour¬age the PSBs to be run on professional lines.
Development Finance Institutipns
Fls's access to SLR funds reduced. Now they have to approach the capital market for debt and equity funds.
Convertibility clause no longer obligatory for as¬sistance to corporates sanctioned by term-lending in¬stitutions.
Capital adequacy norms extended to financial in¬stitutions.
DFls such as IDB! and ICICI ha\,e entered other . segments of financial services such as commercial
banking, asset management and insurance through separate ventures. The move to universal banking has started
