Presentation1

Reforms in Indian Financial system The new economic policy of structural adjustment And globalization programs was given a big thrust In India in 1991 reforms.

PRIOR TO INTRODUCTION OF BANKING PEOPLE USED TO KEEP THEIR MONEY IN POST OFFICES OR IN PIGGY BANK AND LEND MONEY FROM SAHUCARS

Banking is "accepting, for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdraw able by cheese, draft, order or otherwise

WHY NEED FINANCIAL REFORMS …

Change in rule of thumbs Financial institutions and markets were

in bad shape Banking sectors suffered from lack of

competitions Low capital base, low productivity High intermediation costs Note proper risk management system

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Littal competition in insurance and mutual fund industries

High transaction cost Control over pricing of financial Banks were running at a loss or very

low profit Weakling of management and control

functions Imposition of high CRR, SLR and

Directed credit programs for profit sectors

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OBJECTIVES OF FINANCIAL REFORMS

To develop a market oriented, competitive world

Increase the allocative efficiency of available savings and in real sectors

Bring about the effectiveness, accountability, profitability, BOP growth and flexibility

Increases the rate of returns on real investment

Insure that the rationalization of interest rate

To reduce level of resources pre-emption and to improve the effectiveness of directed credit program

To build a financial infrastructure related to supervision

To modernize the instrument of monetary control

To promote competition b y creating level playing fields and facilitating free entry

Systematic and policy reforms Banking reforms Primary and secondary stock

market reforms Government securities market

reforms External financial reforms

MAJOR REFORMS AFTER 1991

interest rate in economy deregulated The SLR on incremental net domestic

and time liabilities of banks reduce from 38.5% in 1991-92 to 25%

The CRR reduced from 15% in 1991-92 to 10% 1995-96

Recovery of debts due to banks and financial institutions act 1993 passed to set up special recovery

SYSTEMATIC AND POLICY REFORMS ………

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Private sectors allowed to set up banks mutual funds, money market, insurance companies to 51%holding of government

SEBI made a statutory body in February 1992

The RBI (amendment ) 1997 Over the Counter Exchange of India

(OTCEI) and NSE with nation wide stock trading and electronic display established

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BANKING REFORMS……….

The SBI and other nationalized banks enabled to access the capital market for debt and equity.

Classification of new assets and provisioning for bad debts for commercial banks, including rural banks.

The performance obligation and commitment obtained by RBI from each bank.

Banks make balance sheet fully transparent and make full discloser in keeping with international account standard committee

Bank given greater freedom to open, shift & swap branches

Budgetary support extended for recapitalization of weak public sectors banks

Banks set free to fix their own foreign exchange e upon position limit subject to RBI approval

Loan system introduced for delivery of bank credit

Mutual funds permitted to underwriter public issue

The stock exchange required to disclose, carry forward position scrip-wise

Depositary act 1996 passed proved to legal framework

Stock exchange asked to collect 100% of daily margins on notional loss of broker for every script to restricted gross trade value to 33.33 times brokers base minimum

PRIMARY AND SECONDARY STOCK MARKET

GOVERNMENT SECURITIES MARKET REFORMS

A 364-day treasury bill replaced in the 182 days in 1992-93

Auction of 91 -day TB commenced from Jan. 1993

Maturity period of new issue of center government securities from 20 to 10 years

For state government securities from 15 to 10 years

Six new instruments introduced : (a) zero coupon bonds on 18.1.94 (b) tap stock on 29.07.94 (c) partly paid govt. stock on 15.11.94 (d) an instrument combining the feature of tap and partly paid 11.09.95 (e) floating rate bonds on 29.09.95 (f) capital indexed bond in 1997

EXTERNAL FINANCIAL REFORMS

Flexible exchange rate system Foreign institutional investors (FIIs)

allowed access to Indian capital market with SEBI

Indian company permitted to access international capital markets through various instruments including euro-equity issue

Union budgets 1997-98 proposed the replacement FERA 1973by FEMA

IMPACT OF FINANCIAL REFORMS

Operating profit. Non performing assets . Secondary market reform. Financial liberalization. Foreign exchange market and foreign

capital flow.

VIEWS FROM ABROAD AGAINST FINANCIAL LIBERALIZATION…….

FUTURE AGENDA FOR REFORMS…….

As a part of operational reforms. Introduce heavy securities transactions

tax. Total public debt in India has

phenomena. New economic policies.

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