Indian

Financial
System
Shakti Shukla
Objectives
To make a historical account of Indian
Financial system before and after
liberalization;
To appreciate the evolutionary process for

having attained the present phase;

To evaluate each component of the system

in a global context; and

To loot at your business decisions in the

context of prevailing financial system of a

state.
What is a good financial
system?
Individuals, Firms, and State
What is a good financial
system?
Individuals, Firms, & State
Player in Middle
Individuals, Firms, State
Indian Financial System Before
1991 Controlled by state
Individuals, Firms, State
Indian Financial System Before
1991
Individuals, Firms, State
Indian Financial System Before
1991 Low profile of market
Individuals, Firms, State
Pre-LPG period (prior to 1991)

Most banks were state-owned

Banks, pension funds and
insurance companies were
forced to buy State Issued
bonds - primary investment.
Bombay Stock Exchange was
closed market. Run by
Brokers for the benefit of its
members. There was no right
governance and regulation.
There was no single
derivative market.
All financial transactions were
controlled by the RBI and
Ministry of Finance
Pre-LPG period (prior to 1991)
Strict entry barriers in every Big Villains
sub-industry.
Difficult to start a bank, a were
mutual fund, a brokerage firm, MRTP act, 1969
an insurance company, a
pension fund, a securities
The Capital Issues
exchange or sub-broking firm. (control) act, 1947
Foreign firms were restricted to Indian Companies Act,
touch any one of these parts 1956
Comprehensive capital control
and restrictive legislations
Industries Act, 1956
Look at a typical bureaucrats
Foreign Exchange
of yester years as perceived Regulation Act, 1973

Socialistic Model Weapons

 Male , Balding head , Ugly stained metal rimmed
glasses .
Thick bushy eyebrows[Usually as a mono-brow], Typical Government
Mustache[See pictures], No beard., Paan Chewing
[ The teeth and tongue are often discolored]. Official
I-don't-care-what-you-say, I'll-do-it-only-my-way
attitude.
Drinking coffee 10 times a day.
Looking for a slightest opportunity to take bribe.
Take home salary is Rs. 5000[Official] + Rs.
25000[Bribes and Misc. tips].
Taking the rules and law by word and not
understanding the true essence of it. Even though
the laws usually date back to the 1850 British
Colonial period .
No respect for anyone's privacy.
Not taking anyone's ideas on improving productivity
even though they are right.
Piles and piles of paper with folders and gem-clips
strewn about.
A rotary dial telephone on the desk..
No air-conditioning and a ceiling fan that rotates 6
times in an hour.
Runs errands for his bosses or chats with family
during work. Also misuses official equipment.
Is usually in a vital position of authority/ In a position
that requires interaction with people everyday.
www.sriraminhell.com
Dream Financial System -
Visible in twenties in Nations
Individuals, Firms, State
Dream Financial System
Market driven
All players with integrity and accountability
Innovators and Creators flourish
Contributes favorably to the Economy
No greedy
Global but not taking external shocks
State facilitates rather than suppresses
BALANCED (NOT A PERFECT
ONE BUT A POSSIBLE) SYSTEM
Individuals, Firms, State
Change since 1991
Eighteen to Three
Scheduled Industries
Eight Hundred to Fifty SSI
MRTP not active
Capital Issues Act revealed
Foreign Exchange
Regulation Act revealed
Insurance, Banking
Industries open its gates
for Private Players
MNC allowed
Liberalization
Banking Regulation Act
simplified
Security Exchange Board
(SEBI) constituted
Foreign Exchange
Management Act passed
Companys Act subject to
scrutiny
Private players allowed to do
insurance and banking
business
SEZs opened
FDI encouraged
Facilitators
Benefit to the Lender
Lender's risk has dwindled
substantially
Liquidity position is improved
Return is certain on his savings
(either fixed or variable)
Lender gets impetus to save
He will get accurate
information from specialized
financial institutions.
Lenders botheration with
respect to selecting a prompt
borrower is reduced
Benefit to the Borrower

Borrower certainty in
rising funds is soared
He needs make less effort
and minimum time in
questing for an ultimate
lender.
In whatsoever fashion he
needs funds he can
procure
He can seek professionals
and specialized assistance
from specialist in the field.
Major Institutions as Merchant
Middlemen
1. Banking financial institutes (RBI, Commercial
banks and co-operative banks)
2. Development banks (all India financial

institutes like IDBI, IFCI)

3. Investment financial institutes (LIC,GIC,UTI,

since 2000 Private insurance companies like

SunLife, Allianz Bajaj, ICICI Prudential etc. )
4. Non-Banking financial institutes (SBI capital

services, Merchant banking companies Hire-

purchase companies, etc.,)
5. Postal department Financial services (Recurring

deposits, NSC, KVP, Postal Life-Insurance etc.).

Indian financial system since
1991
Individuals, Firms, State