Financial Sector & Reforms

Investment in India - Financial Sector & Reforms

Financial Sector Reforms: 1992-93 to 1995-96

Bank norms liberalized and banks given the freedom to decide levels of holding of individual items of inventories and receivables

Ceiling on term loans raised to Rs. 10,000 million for projects involving expansion/modernization of power generation capacities

Banks allowed to set their own interest rate on post-shipment export credit (in Rupees) for over 90 days.

Deregulation of interest rates on loans over Rs. 200,000 against term deposits and on domestic deposits with maturity periods over two years

Banks freed to fix their own foreign exchange open position limit subject to RBI approval

Guidelines issued to banks to ensure qualitative improvement in their customer service.

Loan system introduced for delivery of bank credit. Banks required to bifurcate the maximum permissible bank finance of Rs. 200 million and above into loan component of 40% (short term working capital loan) and cash credit component of 60%.

Competition

Decades of non-commercial orientation, direct lending, loan waivers and increasing non-performing assets had initially made banks difficult to adjust to a market environment having strict prudential norms. However, the emerging results suggest that banks are beginning to adapt to the competitive environment and facing the challenge.

Decontrol

Many steps were taken in 1995-96 to reduce controls and remove operational constraints in the banking system. These include interest rate decontrol, liberalization and selective removal of Cash Reserve Ratio (CRR) stipulation, freedom to fix foreign exchange open position limit and enhanced refinance facilities against government and other approved securities.