2011 CHANGES IN INDIAN FINANCIAL SYSTEM SINCE 1991 SUPPLEMENTARY PROJECT REPORT IFS IILM INSTITITE OF HIGHER EDUCATION LODHI ROAD HARJAS MANRAL PG20101087 INTRODUCTION As the economy grows and becomes more sophisticated, the banking sector has to develop parallely in a manner that it supports and stimulates such growth. With increasing global integration, the Indian banking system and financial system has as a whole had to be strengthened so as to be able to compete. India has had around two decade of financial sector reforms during which there has been substantial transformation and liberalization of the whole financial system.. Until the beginning of the 1990s, the state of the financial sector in India could be described as a …show more content…
There was no scope of secondary market for government securities. The whole system & transactions were highly opaque. In the phase of Nationalization & Social control, there was there was total neglect of rural & agricultural sector. Due to the dominant role of government in economic activity, Indian Financial system catered only to the needs of planned development in a mixed economy framework. Financial markets were segmented & underdeveloped with lack of instruments. There was existence of complex structure of interest rates arising from social & economic concerns. The regulation of lending rates, led to regulation of deposit rates to keep cost of funds to banks at reasonable levels, so that the spread between cost of funds and return on funds is maintained. The lack of recognition of the importance of transparency, accountability and prudential norms in the operations of the banking system led also to a rising burden of non-performing assets. These lacunae in the policies & system made India lag behind in growth with its counterparts. For a long period of around 40 years, India’s growth rate remained average less than 4 percent per annum, while other less developing countries achieved a growth rate of over 5 percent per annum. Moreover, countries like Japan & East Asian countries were able to catch up with the industrialized countries of the west by adopting a market oriented pattern of industrialization .The Indian government had started then in 1980’s the
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Reserve Bank of India came in 1935. During the first phase the growth was very slow and banks also experienced periodic failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the functioning and activities of commercial banks, the Government of India came up with The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive powers for the supervision of banking in India as the Central Banking Authority. During those days public has lesser confidence in the banks. As an aftermath deposit mobilisation was slow. Abreast of it the savings bank facility provided by the Postal department was comparatively safer. Moreover, funds were largely given to traders.
The Indian banking sector has unprecedented growth along with remarkable improvement in its quality of assets and efficiency since economic liberalization began in the early 1991s. This project is about equity research in banking sector In accounting
Apart from the reasons mentioned, the money market as well as capital market witnessed the presence of private moneylenders, landlords etc. They have acted as bankers for centuries and have amassed major wealth from people of India that adversely affected capital formation. The need for a better financial institution and credit infrastructure was thus felt necessary by the planning commission when the five-year plans were initiated.
The Dictionary of Banking and Finance characterizes “Investment Banking” as a term utilized as a part of the US to mean a bank, which bargains with the guaranteeing of new issues and prompts partnerships on their budgetary undertakings. The proportionate term in UK for such capacity is “Issue House”. A more extensive definition is given by Bloomberg, which characterizes a speculation bank as a budgetary go-between that performs a mixed bag of administrations incorporating supporting in the offer of securities, encouraging mergers and other corporate rearrangements, going about as specialists to both individual and institutional customers and exchanging for its own record. Speculation Banking has developed to include a critical place in the field of money related administrations in India in the changed period.
A vibrant banking system is essential for any economy striving to achieve growth and stability in a competitive global business environment. The best indicator for the health of the banking industry in a country is its level of Non-performing assets (NPAs). NPAs are one of the major concerns for banks in India. It reflects the performance of banks. Reduced NPAs generally give the impression that banks have strengthened their credit appraisal processes over the years and growth in NPAs involves the necessity of provisions, which bring down the over all profitability of banks. The Indian banking sector is facing a serious problem of NPA. The magnitude of NPA is comparatively higher in public sectors banks. To improve the efficiency and
The Reserve Bank of India (RBI) is India’s central bank. Though public sector bank’s currently dominate the banking industry, numerous private and foreign banks exist. India 's government-owned banks dominate the market. Their performance has been mixed, with a few being consistent profitable. Several public sector banks are being restructured, and in some the government either already has or will reduce its ownership.
The subject of corporate finance has assumed tremendous significance in the light of the ongoing economic uncertainty across the world. Apart from the three most important decisions of fund raising, fund deployment and generation of returns, greater emphasis has been laid down upon creating a long term value through Economic value addition (EVA). The role of assets in generation of cash flows has become even more pronounced in modern day changing dynamics. More than the external factors, India has certain homegrown structural problems which seriously needs to be addressed at this point in time; the prominent ones being ensuring a high ICOR and addressing the supply side bottlenecks in the economy. Indian companies will have to address the financial problems in the light of the current macroeconomic turmoil of high inflation and revised growth projection of 5%. This has to be done despite having a sound corporate financial framework. This paper attempts to address these problems and tries to suggest some solution to overcome the period of uncertainty
After mid 2008, there were crisis in the international market, which also affected India. A business report published by business standard under the title “Half of India's top firms have destroyed shareholder wealth since FY08” quoted that majority of listed companies reported a decline in their market capitalization. For most of these companies borrowings exceeded their market value resulting a wide spread debt trap. Banks had a mounting volume of bad debt and the
The growth of financial sector in India at present is nearly 8.5% per year. The rise in the growth rate suggests the growth of the economy. The financial policies and the monetary policies are able to sustain a stable growth rate.
Forces for change in Indian Banking: Underlying forces for change Developments in communication systems, coupled with blurring of differences between banks and non - banks and globalization have aggravated the competitive environment. Technology became a key differentiator for the new private sector banks. The technological superiority helped these private sector banks to have upper edge over public sector banks. The traditional source of income (Net Interest margin = Interest Earned – Interest Expended) was compressed due to the pressure of competition. As a
Banking sector is very sensitive and competitive by its nature. Although I have enjoyed full co-operation from employees of Shimrail Branch of Prime Bank Ltd and they also gave much time to prepare this report properly in the way of my study. There are some limitations in the study. Limitations are as follows:
The Indian Finance Industry scene has changed radically with the private division making in street in a zone heretofore commanded by expansive open area Finance Corporations. Developing disinvestment is probably going to affect the money related industry also. There is each plausibility of privatization of open division Finance Corporations, prompting to more prominent operational self-governance.
In India the banks are being segregated in different groups. Each group has their own benefits and limitations in operating in India. Each has their own dedicated target market. Few of them only work in rural sector while others in both rural as well as urban. Many even are only catering in cities. Some are of Indian origin and some are foreign players.