Are you willing to know the detailed information about the Banking Reforms during Liberalization? So here is the article which provides you the detailed information about the Banking Reforms during Liberalization. Firstly we need to have a clear idea about what is Liberalization, Liberalization refers to a relaxation of previous government restrictions, usually in areas of social or economic policy. In some contexts, this process or concept is often, but not always, referred to as deregulation. In the arena of social policy, it may refer to a relaxation of laws restricting. Most often, the term is used to refer to economic liberalization, especially trade liberalization or capital market liberalization.
Here in the Financial Sector reforms are one of the most important policy agenda of the authorities around the world. These are the Several reasons for the same, they are:-
- Majorly, The reforms are needed to increase the efficiency of financial resource mobilizations and it generates a higher level of growth.
- Then Financial Sector reforms are utmost necessary for the macro-economic stability, and in India, it was the worst economic crisis in the decade of 1980s.
Liberalization in the Indian Banking Sector:-
Liberalization in the Indian banking sector was begun since 1992, following the Narsimham Committee Report (December 1991). The 1991 report of the Narasimham Committee served as the basis for the initial banking sector reforms. In the following years, reforms covered the areas of interest rate deregulation, directed credit rules, statutory pre-emptions and entry deregulation for both domestic and foreign banks. The objective of banking sector reforms was in line with the overall goals of the 1991 economic reforms of opening the economy, giving a greater role to markets in setting prices and allocating resources and increasing the role of the private sector.
Importance of the year 1991:-
- Steps were taken to move to a market which is determined to exchange rate system and a unified exchange rate was achieved in the 199s itself.
- The government also released a slew of Norms Pertaining to asset classification, income recognition, capital adequacy, etc, which the banks had Comply with the current accounts convertibility was allowed for the rupee in accordance with IMF Conditions.
- NAtionalized banks were allowed to raise funds from the cap[ital markets to strengthen their capital base.
- The lending rates for commercial banks were deregulated, thereby freeing them to lend more or as they saw fit.
- Also, banks were allowed to fix their own interest rates on domestic term deposits that mature within two years.
- Customers were encouraged to move away from physical cash, as RBI issued guidelines to the banks pertaining to the issuance of debit cards and smart cards.
- FII (Foreign Institutional Investors) were allowed to invest in dated Government Securities
- The NSE (National Stock Exchange) began its operations in 1994
- RBI began the practice of auctioning Treasury Bills spanning 14 days and 28 days
