The word Financial System connotes the meaning of coming together of the banking, insurance, capital market which not only provides stimulus to growth of economy, but also provides the people an opportunity to save, spend, invest, grow their money. A robust financial system facilitates trade, investments and access to a variety of financial instruments, creating a pool for the economy which can be used for further development and accelerate growth. Infact a robust financial system has been identified as one of the catalyzing agent for the growth of the economy. The Indian Financial system has undergone many changes post the opening up of the economy in the 1990’s. The Indian Financial sector reforms can be classified into pre-1990 and post 1990’s era. The pre-1990’s focus area of the financial system was mainly focused on increasing the productivity, import of new technologies. Post 1990’s era reform included in opening up of the economy to foreign investments improving the financial health of the entities, creation and strengthening the foundations of the banking system, streamlining procedure, upgrading technology, creating jobs and employment opportunities etc.
If we see in the last two decades India’s services sector has been leading GDP growth for the economy. The banking sector of the economy has witnessed increased private sector investments including opening up of foreign banks, insurance companies, mutual funds, venture capital and investment institutions The Insurance Sector has seen rapid development with more investment into the economy with lots of private players coming into the Country and with a new liberalized Foreign Direct Investment (FDI) norms into the Insurance Sector, it is expected that the Indian Insurance Industry will grow in a big way.
Eventhough the Financial Sector of the Country has developed in a big way in the last two decades, there are still significant steps that needs to be taken to reform the sector which are:
- The ever-increasing Non-Performing Assets (NPA) of the banks not only creates a negative balance sheet for the banks, but also tests on the overall stability of the economy. Hence steps should be taken to reduced NPA’s of banks
- The inability of banks to quickly enforce security and access to collateral, and the capital constraints in recognizing large loan losses should be looked at.
- The Insurance Industry is still not penetrated enough within the Country to provide protection against any loss like crop loss, damage due to floods, earthquake etc. creating again a negative impact in the economy. Hence steps should be taken to increase insurance penetration, especially in rural areas
- Better cooperation should be initiated between microfinance institutions, financial institutions and banks which will not only provide stimulus to the financial sector but will also provide easy availability of loans, credits, finance to the people especially in the rural areas.
- With the advent of technology, the ease of doing banking, loan disbursal insurance, investments in capital market should reach to more corners of the Country for a better development of the people of the County.