The Financial Sector in India: An Overview
17 Pages Posted: 6 Jun 2012
Date Written: May 15, 2012
A financial system is akin to the circulatory system in the human body, tapping and transporting savings throughout the economy, with markets and banks being the two competing and complementary arteries. The Indian financial system that ranks slightly below the median in World Economic Forum rankings has virtually re-booted since the still ongoing liberalization started in 1991. The four pillars of a financial system – laws, technology, creditors’ rights and corporate governance – have all undergone and still undergoing major tranformations. Financial access and inclusion remain key challenges despite serious efforts and experimentation. The banking system is stable, public-sector dominated, fragmented and heavily regulated. Financial markets, that have witnessed a sea-change since liberalization started, still has limited liquidity with the corporate bond market – key for much-needed infrastructure financing – remaining seriously underdeveloped. The regulatory system is fragmented, rule-based and generally speaking quite conservative. Globalization of the financial system has been steadily increasing with time and while not the most innovation-friendly in the world, it has succeeded in providing stability and averting crises in an increasingly turbulent global financial environment.
Keywords: India, finance, banking, regulation
JEL Classification: G15, G18, P43
Suggested Citation: Suggested Citation