Describe the development of India's financial sector over the last Essay

Describe the development of India's financial sector over the last decade. Support your claims with as much as data possible - Essay Example n India 2003-04, talks about the appropriate timing of the entry of foreign banks into India so as to be co-terminus with the transition to greater capital account convertibility (Thankur, 1990). This shows that the economic policy establishment in India, including the RBI, has not drawn adequate lessons from the experiences of the financial crisis-affected countries. Besides, banks are the principal risk carriers in the system, taking in small deposits that are liquid and making relatively large investments that are illiquid and can be characterised by substantial income and capital risk. The observed tendency among some promoters or boards of banks to divert a substantial share of its deposits into speculative activities in which the promoter or board may be interested or into investments that are risky but promise quick returns, can increase financial fragility, lead to bank failures and if the magnitude of the failure is serious enough, can actually precipitate crisis for the entire financial system (Thankur, 1990). Instances in India such as the Nedungadi Bank and the Global Trust Bank are the harbingers of what may follow if reckless deregulation of the banking sector is carried out. In fact, the experience of recurrent financial crises in the 1990s, most famously the East Asian experience, has shown how banking deregulation along with capital market liberalization often serves as recipes for financial turmoil in developing countries (Desai, 1987). Many guidelines have stated among other things that no single entity or group of related entities would be allowed to hold shares or exercise control, directly or indirectly, in any private sector bank in excess of 10 % of its paid-up capital. Recognising that the 5th March notification by the Union Government had hiked foreign investment limits in private banking to 74%, the guidelines sought to define the ceiling as applicable on aggregate foreign investment in private banks from all sources (FDI, Foreign