Evolution and growth of financial system/institutions in India

📚Growth of financial system/institutions can be discussed in two parts i.e.

I. Post independence

1.Nationalization (Public ownership of financial institutions)

– RBI was nationalized in 1948

– SBI was nationalized in 1956

– 14 commercial banks were nationalized in 1969 and 6 more banks in 1980

– LIC was nationalized in 1956

– GIC was nationalized in 1972

2. Establishment of development banks-

– NABARD in 1982 for agriculture and rural development

– National Housing Bank (NHB) in 1986 for housing development.

– Export Import Bank (EXIM) in 1982 for promoting international trade.

– Many national level organizations for industries such as IFCI, IDBI, IRBI,

-ICICI & state level institutions like SFC, SIDC etc.

3. Credit rating agencies for the benefit of investors.

4. Legal reforms for protection of investors.

– Indian companies Act 1956

– Securities Contract Regulation Act 1956

– MRTP Act 1972

– FERA Act 1973

5. Regulatory Bodies

– SEBI in 1988

– IRDA in 1999

– RBI in 1948 (established under RBI Act 1934, started working in 1935 and nationalized in 1948

6. Participation of financial institutions in corporate management started to

– Control on erring management

– Loan to corporate on the basis of nominees of financing institutions in the board of management.

II. Post Nineties

1.Privatization of financial institutions

– Organizations like IFCI, IDBI started take private equity

– Many private sector banks emerged under guidelines issued by RBI

– Many private sector insurance companies emerged-some of them in collaboration with foreign insurance companies.

– Many private mutual fund companies came it to picture

2. Protection of Investors-

– SEBI was made statutory body in 1992 to project interest of investors

– IRDA in 1999 came up to protect the interest of policy holder. More private insurance companies came in both life and not life insurance as per guidelines of IRDA

3. Liberalization

– In banking sector as more private sector banks came up.

– In insurance sector more insurance companies both in life and non life came up

– Economic liberalization policy started

– Many tax reforms came up

– Disinvestment in public sector undertakings

– Legal reforms by way of changes/amendments in Indian companies Act

– Globalisation