Changes in Indain Financial System Since 1991

Decent Essays

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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