INSTITUTE-USB

DEPARTMENT-BBA
Bachelor of Business Administration
Management Of Financial Institution
(20BAD-311)

Faculty name – Ms. Anmol Preet

Management of Financial Institution DISCOVER . LEARN . EMPOWER

INTRODUCTION TO FINANCIAL INSTITUION

COURSE OUTCOME

CO
NUMBER TITLE LEVEL

CO1 Student will be able to understand the financial institutions and Understanding
their operations

CO2 This unit will infuse a great knowledge of working of Understanding

commercial banking system

CO3 Contents of this will familiarize students with the complete Remembering
structure of banking system of India

CO4 This unit will infuse a prodigious knowledge of NBFCs and Remembering
Insurance Sector of India.

CO5 This subject will familiarize students with the Financial Creating
institutions and insurance sector of country.
 WHAT IS THE FINANCIAL SECTOR?

• The financial sector is a section of the economy made up of firms and institutions that provide
financial services to commercial and retail customers.
• This sector comprises a broad range of industries including banks, investment companies,
insurance companies, and real estate firms.
• The health of the economy depends, in large part, on the strength of its financial sector. The
stronger it is, the healthier the economy. A weak financial sector typically means the economy is
weakening.
 FINANCIAL SECTOR REFORMS
• In India, a decade old on-going financial reforms have transformed the operating environment of the
finance sector from an administrative regime to a competitive market base system.

• Since mid-1991, a number of reforms have been introduced in the financial sector in India.

• Rangarajan once noted that domestic financial liberalization has brought about the deregulation of
interest rates, dismantling of directed credit, reforming the banking system, improving the functioning
of the capital market, including the government securities market.

• The main emphasis on the financial sector reform has been on the banking system so as to improve the
performance of public sector banks.

• . The Narasimhan Committee constituted in 1991 laid the foundation for the revamping of the financial
sector in India. The Committee had submitted two reports– in 1992 and 1998 which gave immense
importance on enhancing the efficiency and viability of this sector.
• India undertook structural changes by way of these reforms and successfully relaxed the
external constraints in its operation i.e. reduction in Cash Reserve Ratio and
Statutory Liquidity Ratio, etc.

• Banks in India had to give a go-by to their traditional operational methods of directed
credit, fixed interest rates and directed investments.

• Another consequence of the reforms was the sprouting up of a number of banks due to the
entry of new private and foreign banks, increased transparency in the banking system
through the introduction of prudential norms and increase in the role of the market forces
due to the deregulated interest rates.

• All these measures lead to major changes in the operational environment of the finance
sector.
OBJECTIVES OF FINANCIAL SECTOR REFORMS IN INDIA
1.To create an efficient, competitive and stable that could contribute in greater measure to stimulate growth.

2. To control the business of the stock market and other securities market.

3. To promote and regulate the self-regulatory organizations.

4. To forbid fraudulent and unfair trade practices in securities market.

5. To promote awareness among investors and training of intermediaries about safety of market.

6. To prohibit insider trading in securities market.

7. Providing operational and functional autonomy to institutions.

8. Preparing the financial system for increasing international competition.

 TYPES OF FINANCIAL SECTOR REFORMS

1. Reduction in Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR)

2. End of Administered Interest Rate Regime

3. Prudential Norms: High Capital Adequacy Ratio

4. Competitive Financial System

5. Non-Performing Assets (NPA) and Income Recognition Norm

6. Promoting Micro-Finance to Increase Financial Inclusion

7. Setting up of Rural Infrastructure Development Fund (RIDF)

 NEED FOR FINANCIAL SECTOR REFORMS

• After independence India inherited a colonial legacy that was full of various social and economic deprivations.

• The planned economic development strategy adopted based on the Mahalanobis model had its limitations that
started showing in the 1980s.

• In order to achieve various economic goals, the government resorted to increased borrowings at concessional
rates which lead to weak and underdeveloped financial markets in India.

• The nationalization of banks increased government control and decreased the role of market forces in the
financial sector.

• Increased bureaucratic control, issues of red-tapism increased the non-performing assets.

• Turbulent international events such as the war in the Middle East and the fall of the USSR increased the
pressure on the Foreign Exchange Reserves of India.
 IMPACT OF VARIOUS REFORMS IN THE FINANCIAL
SECTOR

• It increased the resilience, stability and growth rate of the Indian economy from around 3.5 % to
more than 6% per annum.

• A resilient banking system helped the country deal with the Asian economic crisis of 1977-98 and
the Global subprime crisis.

• The emergence of private sector banks and foreign banks increased competition in the banking
sector which has improved its efficiency and capability.

• Better performance by stock exchanges of the country and adoption of international best practices.

• Better budget management, fiscal deficit, and public debt condition have improved after the
financial sector reforms.
 OVERALL APPROACH TO REFORMS
Since last many years, there have been major improvements in the working of various financial market contributors.
The government and the regulatory authorities have followed a step-by-step approach.
•The entry of foreign companies has helped in the start of international practices and systems.
•Technology developments have enhanced customer service.
•Some gaps however remain such as lack of an inter-bank interest rate benchmark, an active corporate debt market and
a developed derivatives market.
•In general, the cumulative effect of the developments since 1991 has been quite encouraging.
•An indication of the strength of the reformed Indian financial system can be seen from the way India was not affected
by the Southeast Asian crisis.
•Financial experts suggested that there is a need for effective reforms to ensure that this remains competitive and
attractive for investors from across the world.
•The economic reforms have preferred the need for changing the policy objective to promotion of industries and the
formation of more integrated infrastructural facilities.
•Financial sector reforms are center point of the economic liberalization that was introduced in India in mid-1991.
•It was witnessed that national financial liberalization has brought about the deregulation of interest rates, dismantling
of directed credit, improving the banking system, enhancing the functioning of the capital market that include the
government securities market.
•Regulators and economic experts put more emphasis on banking reforms to enhance economy and enable people to
access numerous facilities.
•Fundamental objective of financial sector reforms in the 1990s was to create an effectual, competitive and steady that
could contribute in greater measure to inspire progression.
THANK YOU

For queries
Email: anmol.e12456@cumail.in