Overview of Indian Financial

System
Development since 1991:
The launching of the new economic policy in 1991
has been characterized by profound transformation.
The fundamental philosophy of the development
process in India has shifted to free market
economies and the consequent
liberalization/deregulation/globalization of the
economy.
Major economic policy changes:
Macro-economic stabilization
Delicensing of industries
.Trade liberalization
Currency reforms
Reduction in subsidies
Financial sector/Capital market/Banking
reforms
.Privatization/disinvestment in PSU
Tax reforms and company law reforms
Role of Financial Intermediaries:
Shifting of savings away from investment in

physical assets to financial assets.

Promotes savings which leads to the process of
shifting resources from less productive/under
productive activities to more productive
activities.
Distribution of investment in the economy
between the various activities and sectors,
relevant to the growth process.
Various Financial Intermediaries:

Commercial Banks - Public sector, Private

sector and Foreign.

NBFCs (Non-Banking Financial Companies)
Leasing cos., Hire purchase and consumer

finance cos., Housing finance cos., Venture

capital funds, Merchant Banking
organizations, Credit rating agencies,
Factoring services
Development/Public Financial Institutions
(DFIs/PFIs) -

IFCI Ltd., ICICI Ltd., IDBI,

SIDBI, IIBI
-

SFCs, SIDCs, SIls

Mutual Funds
Insurance organizations -

LIC, GIC
.Foreign Private Capital
 Financial Sector Reforms

First Generation Reforms:

Reduction of SLR and CRR
Redefining ofthe priority sector
Market-related interest rate of government
securities

Re-structuring of gilt edged market

Strengthening of Recovery Mechanism:
Capital restructuring
Deregulation of interest rate
Entry of new generation banks
Constitution of a banking supervisory board
Constitution of rural infrastructure
development fund (RIDF)
Foreign exchange market reforms
Capital market reforms
Regulations relating to NBFCs
Insurance sector reforms
Second Generation Reforms:
Present income and provisioning standards
need to be upgraded to conform to
international standards.
.The gross NPA has to be brought down and the
net NPA has to be brought down.
Development Financial Institutions are to be
permitted to undertake the banking business,
thus bringing both the wholesale and retail
banking sector under one umbrella.
Accepting that NBFCs forms a part and parcel
of the financial system, the regulatory
framework has been initiated to provide
incentives to amalgamate and to convert
themselves into banks.
.Banking supervision strengthened by adopting
the Basel committee's Core Principles for
Effective Bank Supervision.