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Twenty Five Years of Financial Sector Reforms in India : 1991-92 to 2016-17
By Sarika R. Lohana

First Published : 2017
ISBN : 9788177084528
Pages : 402
Binding : Hardbound
Size : 7 x 9
Price : US$ 118

A modern economy, characterised by acute specialisation and exchange, is unthinkable without financial intermediaries, financial markets and financial instruments. Developing appropriate financial institutions and financial markets is a pre-requisite for speedy economic growth.

Soon after Independence in 1947, Government of India followed a policy of social control of important financial institutions. The nationalisation of the Reserve Bank of India (RBI) in 1948 marked the beginning of this policy. This was followed by the takeover of the then Imperial Bank of India in 1956 which was rechristened as State Bank of India (SBI). In 1956 also, 245 life insurance companies were nationalised and merged into the newly created Life Insurance Corporation of India (LIC). In another significant development, Government nationalised 14 major commercial banks in 1969. The year 1972 saw the nationalisation of general insurance companies and the setting up of General Insurance Corporation (GIC). In 1980, 6 more commercial banks were nationalized and brought under public ownership.

As a result of state domination, India’s monetary and financial system was characterised by barriers to entry, control over pricing of financial assets, high transaction costs and restrictions on movement of funds from one market segment to another. It was in this backdrop that wide-ranging financial sector reforms were introduced as an integral part of the economic reforms programme started in early 1990s. These reforms have paved the way for integration among various segments of the financial system. It is widely accepted that reduction/removal of financial repression has enhanced the efficiency and potential growth of the Indian economy.

Financial sector reforms since the early 1990s have focused on the following objectives: (a) elimination of segmentation across various markets in order to facilitate transmission of impulses across markets, (b) easing the liquidity management process and (c) making allocation of resources more efficient across the economy.

To achieve the above objectives, restrictions on pricing of assets have been removed along with the introduction of new instruments. Technological infrastructure has also been strengthened. The general approach to financial sector reforms has been a transparent, collaborative and consultative process aimed at resolving many possible dilemmas. The reform process itself has been characterised by caution with a tilt towards preserving stability, careful sequencing of measures, mutually reinforcing monetary initiatives and ensuring consistency and complementarity with other policies.

The present book explains and examines at length the changes which have swept India’s financial sector since 1991. The book contains 35 chapters organized into 4 theme parts. 

Part I: From Financial Repression to Financial Liberalization

1. Financial System: An Overview
1.1 Meaning, Importance and Functions of Financial System
1.2 Role of the Government in Financial Development
1.3 Determinants of Access to Financial Services
1.4 Regulation and Supervision of Financial System
1.5 Financial Neutrality versus Financial Activism
1.6 Financial Volatility versus Financial Stability
1.7 Financial Globalisation

2. State Domination of the Financial Sector (1947-1990)
2.1 Pre-Independence Financial System
2.2 Post-Independence (1947-1990) Developments in the Financial Sector
2.3 Rethinking on State Domination of Financial Sector

3. Financial Sector Reforms since 1991
3.1 Focus of Financial Sector Reforms
3.2 India’s Approach to Financial Sector Reforms
3.3 Strategy of Financial Sector Reforms
3.4 International Security Standards
3.5 Migration to Basel Norms
3.6 Accounting and Auditing Standards
3.7 Technological Solutions for Financial Services
3.8 Global Financial Crisis and India’s Financial Sector
3.9 Achievements of Financial Sector Reforms and Areas of Concern

4. Legislative and Institutional Measures for Strengthening Financial Sector
4.1 Prevention of Money Laundering Act (PMLA), 2002
4.2 Credit Information Companies (Regulation) Act, 2005
4.3 Government Securities Act, 2006
4.4 Payment and Settlement Systems Act, 2007
4.5 Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015
4.6 Benami Transactions (Prohibition) Amendment Act, 2016
4.7 High Level Committee on Financial Sector Reforms, 2008
4.8 Committee on Financial Sector Assessment (CFSA), 2009
4.9 Financial Sector Legislative Reforms Commission (FSLRC), 2013
4.10 Indian Financial Code (IFC)
4.11 Financial Stability and Development Council (FSDC)
4.12 Financial Action Task Force (FATF)
4.13 Financial Stability Board (FSB)

5. Financial Regulators in India
5.1 Ministry of Finance, Government of India
5.2 Reserve Bank of India (RBI)
5.3 Ministry of Corporate Affairs
5.4 Securities and Exchange Board of India (SEBI)
5.5 Pension Fund Regulatory and Development Authority (PFRDA)
5.6 Insurance Regulatory and Development Authority (IRDA)
5.7 Monitoring Framework for Financial Conglomerates (FCs)

6. Financial Inclusion Policies and Initiatives
6.1 Origins of the Current Approach to Financial Inclusion
6.2 Financial Exclusion and Financial Inclusion Defined
6.3 Advantages of Financial Inclusion
6.4 Measures Taken by Reserve Bank of India (RBI) for Financial Inclusion
6.5 Financial Inclusion Measures by NABARD
6.6 Committee on Financial Inclusion
6.7 Committee on Comprehensive Financial Services for Small Businesses and Low-income Households (CCFS), 2014
6.8 Pradhan Mantri Jan-Dhan Yojana (PMJDY), 2014

7. Micro Finance and Self-help Groups (SHGs)
7.1 Micro Finance
7.2 Self-help Groups (SHGs)

8. Demonetization of High Denomination Currency Notes in November 2016
8.1 Demonetization Defined
8.2 History and Background
8.3 Prime Minister’s Historic Announcement
8.4 Objectives of the Scheme
8.5 Main Features of the Demonetization Scheme
8.6 Package for Promotion of Digital and Cashless Economy
8.7 Pradhan Mantri Garib Kalyan Deposit Scheme, 2016
8.8 Gains from Demonetization
8.9 Problems Created by Demonetization

Part II: Reforms Impacting Financial Institutions

9. Classification, Regulation and Supervision of Financial Institutions in India
9.1 Classification of Financial Institutions in India
9.2 Regulation and Supervision of Financial Institutions in India
9.3 Foreign Direct Investment (FDI) in Financial Services

10. Reserve Bank of India: Functions and Changing Role
10.1 Establishment and Early History of RBI
10.2 Functions of RBI
10.3 Changing Role of RBI in the Financial Sector
10.4 Financial Sector Technology Vision Document

11. Commercial Banks: Post-Independence History and Reforms
11.1 Phase I: Early Years of Independence (1947-69)
11.2 Phase II: From Nationalisation of Banks Till Initiation of Banking Sector Reforms (1969-91)
11.3 Phase III: Banking Sector Reforms since 1991
11.4 Backdrop of Banking Sector Reforms
11.5 Objectives of Banking Sector Reforms
11.6 Components of Banking Sector Reforms
11.7 Credit Allocation Policies
11.8 Regulation/Supervision since 1991 (Post-liberalisation Period)
11.9 Migration to Basel Norms
11.10 Challenges for the Banking Sector

12. Payment Banks
12.1 Pre-paid Instrument Providers (PPIs)
12.2 Payment Banks: Background
12.3 Guidelines for Licensing of Payment Banks

13. Foreign Banks in India
13.1 Role of Foreign Banks
13.2 Advantages and Disadvantages of Foreign Banks
13.3 Road Map for Foreign Banks in India

14. Regional Rural Banks (RRBs)
14.1 Nature and Objectives of RRBs
14.2 Amalgamation of RRBs
14.3 Autonomy for RRBs
14.4 RRBs as Vehicles of Financial Inclusion
14.5 Factors Influencing the Performance of RRBs
14.6 Restructuring of RRBs
14.7 Manpower Challenges of RRBs
14.8 Computerisation in RRBs

15. Urban Co-operative Banks (UCBs)
15.1 Importance of UCBs
15.2 Vision Document and Medium-Term Framework (MTF) for UCBs
15.3 Regulation and Supervision of UCBs: Strengthening Measures
15.4 IT Support for Urban Co-operative Banks (UCBs)
15.5 Working Group on Umbrella Organization and Revival Fund for Urban Co-operative Banks

16. Rural Co-operative Credit Institutions
16.1 Credit Needs of the Indian Farmers
16.2 Sources of Credit for the Farmers
16.3 Co-operative Credit Societies
16.4 Co-operative Banks
16.5 Rural Co-operatives
16.6 Rural Co-operatives: History and Recent Policy Measures
16.7 Primary Agricultural Credit Societies (PACS)
16.8 Problems of Rural Co-operatives
16.9 Task Force on Revival of Rural Co-operative Credit Institutions
16.10 NABARD and the Co-operative Sector

17. Development Finance Institutions (DFIs)
17.1 Categorization and Sub-categorization of DFIs
17.2 All-India Financial Institutions (AIFIs)
17.3 State Level Institutions
17.4 Regulation and Supervision of DFIs
17.5 DFIs in the Changed Scenario

18. Non-banking Financial Companies (NBFCs)
18.1 Classification of NBFCs
18.2 Regulatory Responsibility of NBFCs
18.3 Importance of NBFCs
18.4 Supervisory Framework for NBFCs
18.5 Regulations over NBFCs Accepting Public Deposits
18.6 Residual Non-banking Companies (RNBCs)
18.7 Mutual Benefit Financial Companies
18.8 NBFCs in Insurance Business

19. Mutual Funds
19.1 Types of Mutual Funds
19.2 Legal and Regulatory Framework
19.3 History of Mutual Funds
19.4 Features of Mutual Fund Industry in India
19.5 Problems of Mutual Funds
19.6 Mutual Funds and the Stock Market

20. Pension Funds
20.1 National Pension System (NPS)
20.2 Pension Fund Regulatory and Development Authority (PFRDA)

21. Insurance Organisations
21.1 Nationalisation of Insurance Business in India after Independence
21.2 Weaknesses of Insurance Industry Prior to Reforms of Late 1990s
21.3 Committee on Reforms in Insurance Sector, 1994
21.4 Indian Insurance Business: From State Monopoly to Competition
21.5 Insurance Regulatory and Development Authority (IRDA)
21.6 Post-liberalisation Developments in Insurance Business

22. Digital Technology in Banking Sector
22.1 Internet Banking
22.2 Mobile Banking

Part III: Financial Market Reforms

23. Financial Markets: An Overview
23.1 Importance of Financial Markets
23.2 Types of Financial Markets
23.3 Regulation and Supervision of Financial Markets in India
23.4 Financial Markets and Monetary Policy of the RBI
23.5 Reforms in the Financial Markets

24. Money Market
24.1 Meaning and Functions of Money Market
24.2 Reserve Bank of India (RBI) and the Money Market
24.3 Evolution of Money Market in India
24.4 Developments in the Money Market since 1991

25. Government Securities Market
25.1 Meaning of Securities and Government Securities
25.2 Importance of Government Securities Market
25.3 Government Securities Market: Legal Framework and Role of the RBI
25.4 Mandated Investments in Government Securities: Categories of Investors
25.5 Evolution of Government Securities Market
25.6 Post-1991 Measures to Promote Government Securities Market

26. Capital Market
26.1 Meaning and Importance of Capital Market
26.2 Capital Market in the Pre-reforms (i.e. Pre-1991) Period
26.3 Establishment of Securities and Exchange Board of India (SEBI)
26.4 Capital Market Reforms since 1991
26.5 Modernisation of Stock Exchanges
26.6 Depository System, Dematerialisation (Demat) and Rematerialisation
26.7 National Securities Depository Limited (NSDL)
26.8 National Securities Clearing Corporation Ltd (NSCCL)
26.9 Introduction of Free Pricing
26.10 Strengthening of Disclosure Norms
26.11 Transparency and Efficiency
26.12 Shortening of Settlement Cycle
26.13 Growth of Service Providers
26.14 Protection of Investors
26.15 Cross Border Portfolio Investment Flows

27. Corporate Debt Market
27.1 Significance of the Corporate Debt Market
27.2 Lessons from East Asian Crisis
27.3 Corporate Debt Market in India
27.4 Reasons for Slow Growth of Corporate Debt Market
27.5 High Level Expert Committee on Corporate Debt and Securitisation
27.6 Development of Corporate Bond Market in Select Countries

28. Foreign Exchange Market
28.1 Pre-Independence Period
28.2 Pre-reforms Period (1947-90)
28.3 Post-reforms Period (1991 onward)
28.4 Measures Undertaken to Develop Foreign Exchange Market
28.5 Hedging for Foreign Currency Exposure
28.6 Foreign Exchange Exposure Norms of Commercial Banks
28.7 Present Structure of Foreign Exchange Market
28.8 Sources of Supply and Demand of Foreign Exchange
28.9 Foreign Exchange Dealers’ Association of India

29. Payment Systems, Clearing and Settlement Infrastructure
29.1 Importance of a Sound Payment and Settlement System
29.2 Segments of Payment System
29.3 Large Value Payment Systems
29.4 Retail Payment Systems
29.5 Reforms Pertaining to Clearing and Settlement
29.6 Central Counterparties
29.7 Government Securities Settlement System
29.8 Role of RBI in Payment and Settlement System
29.9 Recent Measures to Promote Electronic Retail Payments

30. Integration of Financial Markets
30.1 Integration of Financial Markets: Conceptual Framework
30.2 Need for Integration of Domestic Financial Markets
30.3 Measures Taken for Integration of Financial Markets in India
30.4 Segment-wise Integration
30.5 Regional Financial Integration (Asia)
30.6 International Financial Integration

31. Credit Rating Practices

Part IV: Traditional and Innovative Financial Instruments

32. Principal Direct Financial Instruments of the Capital Market
32.1 Ordinary Shares
32.2 Preference Shares
32.3 Debentures
32.4 Types of Orders

33. Financial Derivatives: Emergence and Popularity
33.1 Emergence of Complex Financial Products
33.2 Meaning of Derivatives
33.3 Reasons for the Popularity of Derivatives
33.4 Variants (or Types) of Derivative Contracts
33.5 Participants in the Derivatives Market
33.6 Economic Role of Derivatives
33.7 History of Derivatives
33.8 International Experience of Derivatives

34. Forwards, Futures and Options
34.1 Forwards/Forward Contracts
34.2 Futures/Future Contracts
34.3 Options
34.4 Currency Futures
34.5 Forward Markets Commission (FMC)

35. Derivative Instruments in India
35.1 L.C. Gupta Committee on Derivatives Trading in India
35.2 Amendment of Securities Contract Regulation Act (SCRA)
35.3 Measures to Protect the Rights of Investors in the Derivatives Market
35.4 Recent Developments in the Derivatives Market
35.5 Credit Derivatives
35.6 Credit Derivatives in India
35.7 Traders and Trading System of Derivatives




Dr. Sarika R. Lohana is UGC-Dr. Radhakrishnan Post-doctoral Fellow in Humanities and Social Sciences, School of Commerce and Management Sciences, Swami Ramanand Teerth Marathwada (SRTM) University, Nanded. She received her M.Com. from SRTM University, Nanded; M.Phil. in commerce from Alaggappa University, Karaikudi; Ph.D. from the School of Commerce and Management Sciences, SRTM University and MBA in finance from Indira Gandhi National Open University (IGNOU), New Delhi.

She has co-authored 1 book titled, Demonetization, Digital India and Governance and also edited another book. She has published papers in Indian Journal of Management Review; Global Journal of Multi-disciplinary Studies and Asian Journal of Management Sciences. She is a member of the International Technical Committee on Social and Human Sciences, WASAT (USA). Her areas of research interest include financial and marketing management, entrepreneurship, corporate finance, and neuro and behavioural finance.

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