Banking and Financial Markets in India 1947 to 2007

Finance is the life blood of a modern economy. A financial system helps to mobilize the financial surpluses of an economy and transfers them to areas of financial deficit. It is the linchpin of any development strategy. Soon after independence in 1947, the government of India followed a policy of social control of important financial institutions. This was reflected, through the years, in the nationalization of the Reserve Bank of India (RBI), the takeover of the then Imperial Bank of India (rechristened as State Bank of India), creation of the Life Insurance Corporation of India (LIC), further nationalization of major commercial banks and general insurance companies, and the setting up of the General Insurance Corporation (GIC). As a result of state domination, India's financial system was characterized by barriers to entry, control over pricing of financial assets, high transaction costs, and restrictions on movement of funds from one market segment to another. It was in this backdrop that wide-ranging financial sector reforms were introduced as an integral part of the economic reforms program started in early 1990s. These reforms have paved the way for integration among various segments of the financial system. It is widely accepted that reduction/removal of financial repression has enhanced the efficiency and potential growth of the Indian economy. This book explains and examines at length the changes which have swept India's financial sector over the last 60 years since independence, with focus on post-1991 period.