REG NO: 16BBA0009
OF INDIAN FINANCIAL SYSTEM:
For many years
the presidency banks acts as quasi-central banks and they did their successor.
The three banks merged in 1921 to form the imperial bank of India and after
India’s independence the bank became the state bank of India.
The between the
period of 1906 and 1911 there was the establishment of banks inspired by the
swadeshi movement. And this swadeshi movement attracted local businessmen and
political to found banks for the Indians. After that number of banks was established then have fully running at
present also such as bank of India, corporation bank, Indian bank, bank of
Baroda, Canara bank and central bank of India.
of Indian financial system was characterised by:
Absence of organised capital market.
Dependence of industries and other user
on internal sources.
Rare cases of public issues of capital
for expansion and modernisation.
Very few financial institutions and
players in the market.
Very strict condition for loan
assistance to companies.
financial system has faced several fluctuations from the barter system in
pre-industrial economies to universal banking. Evolution Indian financial system
development is divided into three phases.
The first phase on pre-1951 period.
The second phase is from 1951 to 1990
The third phase on Post-1990 period.
PHASE ON PRE-1951 PERIOD:
system before 1951 had with the theoretical model of a financial organisation
in a traditional economy, as formulated by R.L. Bennett. The principals of pre-1951
financial system were described by L.C. Gupta. The principal of
pre-independence industrial financing organization have certain characters of
industrial entrepreneurship a semi organised and narrow industrial securities
markets and devoid of issuing institutions and the virtual absence of
participation by intermediary financial institutions in industry.
a result from this, the industry had restricted access to the outside saving. Such a financial system was
clearly incapable to sustaining a high rate of industrial growth, particularly
growth of new and innovating enterprises.
Control of money lenders
No regulatory bodies
No laws –total private sectors
Hardly any industrialization
Banks- traditional lenders for trade and
that too short term
Main concentration on traditional
Narrow industrial securities
Absence of intermediatary institution in
long term financing of industry
PHASE FROM 1951-1990
During this 1951-1990
financial system is ability to supply the finance and credit to various
entrepreneurs and for new business forms greater strength to the second phase.
In this period Indian financial system have a responsibility to have planned
economic development. Broad economic and social aims of the state to secure
economic growth with rules and regulations of the Indian constitution, under
the principles of State policies, the scheme of planned economic development
was initiated in 1951.
planned economy development the economy have both public and private sector as
mixed economy. And the implication of financial system is laid down by
government’s economic policy. Planning has distribution of resources by the
financial system with five year plans. In this planning process government have
implemented certain patterns for distribution of finance and credits.
economic development is divided into four groups:
Public ownership of financial
Fortification of the institutional
Protection of investors
Participation of financial institutions
in corporate management
Moneylenders ruled till 1951. No banks are
running properly at that time. Industries depended on their own money. 1951
onwards the five year plan was commenced.
Ø Public ownership of financial
Evolution of financial system of India has a
progressive transfer of private ownership to public control. The control of
public has certain measures of nationalization for creation of new institution
with the control of public
SBI-1956 take-over of imperial bank of
LIC-1956 mergers of over 245 life
Banks-1969-14 major banks under the
control of government of India
Banks- 1980-6 more banks
Insurances-1972 GIC (General insurance
Ø DEVELOPMENTAL BANKS ALSO FORMED IN
Industrial Finance Corporation of India
(IFCI) in1948 was the beginning of the developing banking in India. The full
power of this institution was given in the beginning of 1951. This institution
gives medium and the long term credit for the industrial enterprises.
National industrial development (NIDC) was
started in 1954 to provide finance and credit for entrepreneurship and
financing agency for modern cotton and jute industry.
Industrial Credit and Investment
Corporation of India (ICICI) in 1955.
Refinance Corporation of Industry was
started in 1958 provide finance to the banks in term of loan granted by them to
small and medium enterprises.
Industrial Developmental Bank of India
was took place in India in 1964
PHASE ON POST 1990s:
this phase new economic policy are formulated. The main features in economic
reforms in this phase are,
means more number of industries is setup by private sector and certain public
sector industries are sold to private sector.
Sales of public sector securities
Disinvestment of public sector
Number of industries of public sectors
Investment in private is maximum
under economic reform:
means linking with rest of the world. Here globalization means Indian economy
should link with whole world such as free trade policy and capital and moving
of person across the borders.
Tariffs was reduced for imports and
Long term during policy was introduced
in this phase.
under economic reform:
means free in form to direct and physical controls imposed by government.
Before post 90’s
there was restriction for big investments, licensing policy, foreign exchange
control etc., under government side. After the liberalization there was control
on corruptions, political interference, and etc.
Licence system was introduced in this
period by liberal policy since 1991. There are certain industry must their
licence before setting their industry they are liquor, cigarette, defence
equipments, dangerous chemical, drug, industrial explosive.
The industry which has assets more than
100 cores need not get approval from government.
No barriers for import technology and
abolished the limit of production expansion and investment for small scale
OF INDIAN FINANCIAL SYSTEM 1900-2017:
In 1990’s Indian economy has undergoing
economic reforms which includes financial reforms.
And Indian banking system has become
more market oriented in 1991.
Number of stock exchange was increased
from 9 to 22 in years 1981-1991 and there was a rapid expansion of stock
The number of listed companies is
increased from 2265 to 6229 in years 1980-1991 and market capitalization from 68
billion in 1980 to 1103 billion in 1991and 11926 billion in 2000.
In 1991 liberalization have been taken
on the cash reserve ratio and statutory liquidity ratio and before 1991 before
CRR is more than 25% and SLR IS 40% and at 2006-7 the CRR came down to 6% and
SLR is 25% and at present CRR and SLR.
The number of foreign and private banks
operation was increased from 21 and 23 in 1991 to 33 and 30 in 2004.
DEVELOPMENT IN INDIAN FINANCIAL SYSTEM,
Withdrawal of legal tender status for
?500 and ?1000 notes.
To reduce the corruption and black money
circulation in the economy the government decided to stop the circulation of
500 and 1000 notes into the economy. And instead of those notes the financial
system introduced new currency for legal transaction.
Passages of goods and service tax bill.
The government passed the tax on goods
and service on august 2016. The special additional duty on custom GST would
lead to a uniform consumption –based tax structure across the all goods and
Thrust towards digitisation on
demonetisation in India, there is change toward payment every payment is made
in digital/electronic way. To make digital India.
POLICY MEASURES FOR DEVELOPMENT
New import and export policy was formulated
Services exports were encouraged
Replenishment rates were modified to encourage
higher value added product
for five year 1992-1997 was implemented
imports were regulated through a limited negative list
Under the duty
exemption scheme and the export promotion of capital goods scheme third party
export were given benefits
restrictions were phase out in the
form of licensing and other discretionary controls
imports were liberalised with only small list of items
in negative list
all exports promotion schemes were exempted from special additional duty
of bond-furnishing producers for
for EOU/EPZ for 10 years
zone replaced export processing zone
green card for
exporters for exporting 50% for their production
imports of consumables up to certain
limits for gems and jewellery, handicrafts and leather sector
restrictions removed from 714 tariff fines
setting up special
special economic zone
export duty on
iron ore fines were eliminated
added under the focus market scheme(FMS) with incentive of duty credit scrip
at 3% of export
export promotion capital goods scheme and status holder incentive scrip
scheme are introduced