Click to edit Master subtitle style

INDIAN FINANCIAL SYSTEM

9/18/12

FEATURES

Promotes the well being and standard of living of the people of a country Money and monetary benefits Mobilize the savings Promotes investment

9/18/12

Financial System of any country consists of financial markets, financial intermediation and financial instruments or financial products.

9/18/12

9/18/12

9/18/12

Pre-Reforms Period

Mid 1960s to early 1990s Characterized by:

a. b. c. d. e.

Over controlled and rigid system Administered interest rates Industrial licensing & controls, quantitative restrictions and high tariffs Dominant public sector Limited competition High capital-output ratio

9/18/12

f.

Banks and financial institutions acted as a deposit agencies Price discovery process was prevented Till 90s it was closed, highly regulated, and segmented system Government failed to generate resources for investment and public services

9/18/12

STEPS TAKEN in a nutshell

Government liberalized the various sectors in the economy Economic Reforms initiated in June 1991.

9/18/12

Reforms in the fields of:

q q q q q

banking sector debt market foreign exchange market capital markets economic reforms

9/18/12

OBJECTIVES

Reorientation of the economy Macro economic stability To increase competitive efficiency in the operations To remove structural rigidities and inefficiencies To attain a balance b/w thr goals of financial stability and integrated & efficient markets

9/18/12

THE STABILIZATION POLICIES

Aimed at reducing the balance of payments deficit by:

a.

Reducing the rate of fiscal growth Curbing the excess demand on Indian foreign exchange reserves licensing

b. Monetary tightening c.

d. Reduced tariffs and abolishment of import e.

FDIs encouraged

9/18/12

REFORMS IN THE BANKING SECTOR

AIM: bringing in international best practices in a phased manner in the areas of capital adequacy requirement, accounting, income recognition and provisions for risk exposure

9/18/12

STEPS:

Allowed public listing Increase capital through disinvestment Enhance competition Slashed rates of CRR & SLR

9/18/12

Impact of Reforms on the Banking Industry

It has been observed that the banking sector in India has provided a mixed response to the reforms initiated by the RBI and the Govt. of India since the 1991. The sector has responded very positively in the field of enhancing the role of market forces, regarding measures of prudential regulations of accounting, etc.. But at the same time the reform has failed to bring up a banking system which is at par with the international level and

9/18/12

RECOMMENDATIONS

Reduce the level of state ownership in banking Lift restrictions on foreign ownership of banks Speed up the development of electronic payments Separate the RBIs regulatory and Central-bank functions Strengthen legal protections the insurance industry

Deregulate 9/18/12

Reforms in Debt Market

Dominated by G-Secs Publication of transactions maintain transparency Market stabilization scheme Significant reforms:- CCIL WDM NDS

9/18/12

Foreign exchange market reforms

Since 1950s Controlled strictly Partial convertibility announced in 199293 FERA replaced by FEMA in 1999 Authorized dealers were permitted to use innovative products:-Cross currency option Interest rate and currency

swaps
9/18/12

Reforms in Capital Market

Prior to 1991, Ministry of finance controlled the price and quantity of IPOs BSE members dominates the market The New Economic Policy led to a major change. SEBI was set up in 1988 and got the statutory powers in 1992

9/18/12

Major reforms:

Allowing FII Incorporation of National Stock exchange Depositories Act Derivatives Trading

9/18/12

Dynamic Capital Market

9/18/12

Economic Reforms and Impact on India

Impressive acceleration in annual GDP growth Saved from being swept away during the Asian crisis Goldilocks Globalization Financially stabled economy

9/18/12

By: Punnet Ankit Janaki Varun Tanvi Ayush Taniya

9/18/12