Answer:
1. Reduction in SLR
An important financial
reform has been the reduction in Statutory Liquidity Ratio (SLR) and Cash
Reserve Ratio (CRR) so that more bank credit is made available to the industry,
trade and agriculture. The statutory liquidity ratio (SLR) which was as high as
39 per cent of deposits with the banks was reduced in a phased manner to 25 per
cent.
It may be noted that under
statutory liquidity ratio banks are required to maintain a minimum amount of
liquid assets such as government securities and gold reserves of not less than
25 per cent of their total liabilities. In 2008, statutory liquidity ratio was
reduced to 24 per cent by RBI.
The reduction in CRR and
SLR has made available more lendable resources for industry, trade and
agriculture. Reductions in CRR and SLR also made possible for Reserve Bank of
India to use open market operations and changes in bank rate as tools of
monetary policy to achieve the objectives of economic growth, price stability
and exchange rate stability.
2. End of Administered
Interest Rate Regime:
A basic weakness of the
Indian financial system was that interest rates were administered by the
Reserve Bank/Government. In the case of commercial banks. This system has now
been abolished.
3. Prudential Norms: High
Capital Adequacy Ratio:
In order to ensure that
financial system operates on sound and competitive basis, prudential norms,
especially with regard to capital-adequacy ratio, have been gradually
introduced to meet the international standards. Capital adequacy norm refers to
the ratio of paid-up capital and reserves to deposits of banks. The capital
base of Indian banks has been very much lower by international standards and in
fact declined over time.
4. Competitive Financial
System:
After nationalization of
14 large banks in 1969, no bank had been allowed to be set up in the private
sector. While the importance and role of public sector banks in Indian
financial system continued to be emphasised, it was however recognized that
there was urgent need for introducing greater competition in the Indian money
market which could lead to higher efficiency of the financial system.
5. Non-Performing Assets
(NPA) and Income Recognition Norm:
Non-performing assets of
banks have been a big problem of commercial banks. Non-performing assets mean
bad loans, that is, loans which are difficult to recover. A large quantity of
non-performing assets also lowers the profitability of bank. In this regard, a
norm of income recognition introduced by RBI is worth mentioning. According to
this, income on assets of a bank is not recognized if it is not received within
two quarters after the last date.
6. Elimination of Direct
Credit Controls:
Another significant
financial sector reform is the elimination of direct or selective credit
controls. Selective credit controls have been done way with. Under selective
credit controls RBI used to control through the system of changes in margin for
provision of bank credit to traders against stocks of sensitive commodities and
to stock brokers against shares. As a result, there is now greater freedom to
both the banks and borrowers in respect of credit.
7. Promoting Micro-Finance
to Increase Financial Inclusion:
To promote financial
inclusion the government has started the scheme of micro finance. RBI provides
guidelines to banks for mainstreaming micro-credit providers and enhancing the
outreach of micro-credit providers inter alia stipulated that micro-credit
extended by banks to individual borrowers directly or through any intermediary
would henceforth be reckoned as part of their priority-sector lending. However,
no particular model was prescribed for micro-finance and banks have been
extended freedom to formulate their own model(s) or choose any
conduit/intermediary for extending micro-credit.
Termination of Automatic
Monetisation of Budget Deficits:
This is significant
reforms measure to put a check on the growing fiscal deficit of the Central
Government. Before 1997 whenever there was a deficit in Central Government
budget this was financed by borrowing from RBI through issuing of ad hoc
treasury bills. RBI issued new notes against these treasury bills and delivered
them to the Central Government.
Pension Reforms:
Since October 2003, a New
Pension Scheme (NPS) was introduced by the Central Government for its
employees. Later many States have also joined the scheme for their employees.
No comments:
Post a Comment