India's Financial System

109 Pages Posted: 31 Aug 2008

See all articles by Franklin Allen

Franklin Allen

Imperial College London

Rajesh Chakrabarti

O. P. Jindal Global University

Sankar De


Date Written: October 27, 2007


With recent growth rates among large countries second only to China's, India has experienced nothing short of an economic transformation since the liberalization process began in the early 1990's. In the last few years, with a soaring stock market, significant foreign portfolio inflows including the largest private equity inflows in Asia, and a rapidly developing derivatives market, the Indian financial system has been witnessing an exciting era of transformation. The banking sector has seen major changes with deregulation of interest rates and the emergence of strong domestic private players as well as foreign banks. At the same time, there is some evidence of credit constraints for India's SME firms that rely heavily on trade credit. Corporate governance norms in India have strengthened rapidly in the past few years. Family businesses, however, still dominate the landscape and investor protection, while excellent on paper, appears to be less effective owing to an overburdened legal system and corruption. In the last few years microfinance has contributed in a big way to financial inclusion and is now attracting venture capital and for-profit companies - both domestic and foreign.

Keywords: India, capital markets, microfinance, corporate finance

Suggested Citation

Allen, Franklin and Chakrabarti, Rajesh and De, Sankar, India's Financial System (October 27, 2007). Available at SSRN: or

Franklin Allen

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Rajesh Chakrabarti (Contact Author)

O. P. Jindal Global University ( email )

Sonepat Narela road
Sonepat, Haryana 131001

Sankar De

Independent ( email )

Villa 286 bTR
Srisalam Highway
Hyderabad, Telengana
+91 7042662505 (Phone)

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