Evolution of Indian Financial System

5125 Words Feb 22nd, 2012 21 Pages
Evolution of Indian Financial System: A Critical Review
EXECUTIVE SUMMARY
The Economic Development of a country depends, inter alia, on the financial system. The larger the proportion of the financial assets (money and monetary assets) to real assets (physical goods and services), the greater the scope for economic growth in the long run. For growth to take place, investment is necessary which flows from the financial system. Besides, as a scarce factor of production in the Less Development Countries (LDCs), finance has a crucial role to play in these economies.
The growth objective of the financial system is to achieve the structure and rate of growth of various financial assets and liabilities in consonance with the optimal
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The major objectives of the financial liberalization were to improve the overall performance of the Indian financial sector, to make the financial institutions more competent and more efficient. However, Indian financial system continues to be a bank based financial system and the banking sector plays an important role as a resource mobiliser. It remains the principal source of resources for many households small and medium enterprises and also caters the large industries. And also provides many other financial services. Underlining the importance of the banking sector, several banking sector specific reforms as apart of financial reforms were introduced to improve the performance of the Indian banking sector and to make the Indian banks more competent and efficient. Against this backdrop, the present paper intends to determine the efficiency of the banks operating in India.

FINANCIAL INSTRUMENTS The term ‘derivatives, refers to a broad class of financial instruments which mainly include options and futures. These instruments derive their value from the price and other related variables of the underlying asset. They do not have worth of their own and derive their value from the claim they give to their owners to own some other financial assets or security Section 2(ac) of Securities Contract Regulation Act (SCRA) 1956 defines Derivative as:
a) “a