Reforms in Indian Financial systemThe new economic policy of structural adjustmentAnd globalization programs was given a big thrustIn India in 1991 reforms.
PRIOR TO INTRODUCTION OFBANKING PEOPLE USED TO KEEPTHEIR MONEY IN POST OFFICESOR IN PIGGY BANK AND LENDMONEY FROM SAHUCARS
Banking is "accepting, for thepurpose of lending or investmentof deposits of money from thepublic, repayable on demand orotherwise and withdraw able bycheese, 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 Count………
Count…….. 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
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
MAJOR REFORMS AFTER 1991 Systematic and policy reforms Banking reforms Primary and secondary stock market reforms Government securities market reforms External financial reforms
SYSTEMATIC AND POLICY REFORMS ……… 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 Count………..
Count……….. 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
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
PRIMARY AND SECONDARY STOCK MARKET 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
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 featureof 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 FINANCIALLIBERALIZATION…….
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.