REG NO: 16BBA0009
OF INDIAN FINANCIAL SYSTEM:
banks merged in 1921 to form the imperial bank of India and after India’s
independence the bank became the state bank of India.
establishment of banks in between 1906-1911 inspired by swadeshi movement. And
this swadeshi movement attracted business mans and political people to found
banks for the Indians. After that number of banks was established and then they
have fully running at present also such as corporation bank, Indian bank, bank
of Baroda, Canada bank and central bank of India.
of Indian financial system was characterised by:
There was of absence of organised
There was a rare case of public issues
of capital for expansion and modernisation.
And there are a few financial institutions
and players in the market.
The companies have strict conditions for
getting loan to start their own business.
system has faced many stages to attain universal banking system in economy. 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:
There was traditional
economy of financial organisation before 1951 of Indian financial system as
formulated by R.L. Bennett. There is 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 result from this, the industry had restricted access to the outside saving. Such a financial system was
clearly shown that there was incapable to sustaining a high rate of industrial
growth, particularly growth of new and innovating/creative business.
Control of money lenders in that period
No regulatory bodies in country
No laws –total private sectors
Hardly any industrialization in the
Banks- traditional lenders for trade and
that too short term
Main concentration on traditional
agricultural and related activities
Absence of intermediatary institution in
long term financing of industrial activity
PHASE FROM 1951-1990
During period of
1951-1990 more supply of finance and credit for the entrepreneurs and industry
to strengthen economic growth. In this period Indian financial system have a certain
responsibility to have planned economic development in economy. There was a broad
economic policy 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.
In the period of 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 new five
year plans. In this planning process government have implemented and aimed
certain patterns for distribution of finance and credits to develop the growth
of the economy.
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 sector.
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 introduced in this period for the development of banking
in India. The full power for these institutions was given in the year 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 is called privatization in
Sales of public sector securities to
Disinvestment of public sector and less
control of public sectors.
Number of industries of public sectors
was reduced in the economy and there was increase in industries in private
There was a maximum investment in
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 free
movement of person across the borders.
Increase in Foreign investments
A tariff was reduced for imports and
exports goods and commodities.
Long term during policy was introduced
in this phase.
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 have their
licence before setting up their industry such industries are liquor, cigarette,
defence equipments, dangerous chemical, drug, industrial explosive.
The industry which has assets more than
100 crore they are need not get approval from government.
No barriers for import technology and there
was abolition of the limit of production expansion and investment for small
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 is 4% and SLR is 19.5 %.
The number of foreign banks 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
1. New import and
export policy was formulated
exports were encouraged
rates were modified to encourage higher value added product.
1. EXIM policy
for five year 1992-1997 was implemented
2. Since 1992
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
2. Control on
imports were liberalised with only small list of items
in negative list
1. EXIM policy
1. Exports under
all exports promotion schemes were exempted from special additional duty
of bond-furnishing producers for
3. Tax holiday
for EOU/EPZ for 10 years
1. Free trade
zone replaced export processing zone
2. green card for
exporters for exporting 50% for their production
3. duty free
imports of consumables up to certain
limits for gems and jewellery, handicrafts and leather sector
restrictions removed from 714 tariff fines
2. setting up special
1. continued on
special economic zone
2. export duty on
iron ore fines were eliminated
1. 27 markets
added under the focus market scheme(FMS) with incentive of duty credit scrip
at 3% of export
2. Zero duty
export promotion capital goods scheme and status holder incentive scrip
scheme are introduced