Development of Financial System in India

2 Chapter
DEVELOPMENT OF FINANCIAL SYSTEM IN INDIA
OBJECTIVE : The objective of this lesson is to give an overview of development of financial system in India.
STRUCTURE

Nationalization of Financial Institution Reserve Bank of India Unit Trust of India Development Banks Institutions for Financing Agriculture Institutions for Foreign Trade Institutions for Housing Finance Stock Holding Corporation of India Ltd. Mutual Fund Industry Venture capital Industries Credit Rating Agencies Weaknesses of Indian Financial System
Nationalization of Financial Institution
As we know that the RBI is the leader of the financial system. But, it was established as a private institution in 193 5. It was nationalized in 1948. It was followed by the nationalization of the Imperial Bank of India in 1956 by renaming it as State Bank of India. In the same year, 245 Life Insurance Companies were brought under Government control by merging all of them into a single corporation called Life Insurance Corporation of India. Another significant development in our financial system was the nationalization of 14 major commercial banks in 1969. Again, 6 banks were nationalized in 1980. This process was then extended to General Insurance Companies which were reorganized under the name of General Insurance Corporation of India, thus, the important financial institutions were brought under public control.
RESERVE BANK OF INDIA

Organization of the Bank Central Board Local Board Department of Central Office 1)Secretary's Department 2)Department of Administration and Personnel 3)Department of Accounts and Expenditure 4) Premises Department 5) Inspection Department 6) Legal Department 7) Exchange Control Department 8) Department of Banking Operations and Development 9) Department of Non-banking Companies 10) Agricultural Credit Department 11) Industrial Finance Department 12) Economic Department 13) Department of Statistics 14) Reserve Bank of India Services Board
Functions of the Reserve Banks of India
Central banking functions. Supervisory functions. Promotional functions.
1) Central Banking Functions

i) Issue of Bank Notes ii) Banker to Government iii) Bankers' Bank
iv) Custodian of Foreign Exchange Reserves

v) Controller of Credit
2) Supervisory Functions
In order to promote and develop a sound and efficient
system of banking in India, the Reserve Bank has been given several supervisory powers over different banking institutions. These powers relate to licensing and establishment, branch expansion, liquidity of assets, management, working, amalgamation, reconstruction and liquidation of commercial and co-operative banks. The Reserve Bank carries out periodical inspections of these banks and calls for such information, which it considers necessary for effective performance of its functions.
3) Promotional Functions
The Reserve Bank of India as a Central Bank of the country has assumed greater responsibilities as developmental and promotional agency as compared to a merely monetary authority. It not only controls the credit and currency in the economy or maintains internal/external value of the rupee for ensuring price stability but also acts as
a promoter of financial institutions, required for meeting specific financial requirements

of' the developing economy. At the time of establishment of the Reserve Bank of India in the Year 1935, the country lacked a well-developed money market and a well-developed commercial banking system. Moreover, it was industrially a backward country. After independence, the country embarked upon a well-organized and planned economic
development. The process is still continuing. All this made necessary for the Reserve
Bank of India to pursue appropriate monetary and credit policy and take all necessary steps required for a fast growth and development of all sectors of the economy, keeping in view the guidelines and policies formulated by the Government.
WEAKNESSES OF INDIAN FINANCIAL SYSTEM

(i) Lack of Co-ordination between different
Financial Institutions (ii) Monopolistic Market Structures (iii) Dominance of Development Banks in Industrial Financing (iv) Inactive and Erratic Capital Market (v) Imprudent Financial Practice

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2 Chapter

DEVELOPMENT OF FINANCIAL SYSTEM IN INDIA

Nationalization of Financial Institution

RESERVE BANK OF INDIA

Functions of the Reserve Banks of India

Central banking functions. Supervisory functions. Promotional functions.

1) Central Banking Functions

iv) Custodian of Foreign Exchange Reserves

a promoter of financial institutions, required for meeting specific financial requirements

WEAKNESSES OF INDIAN FINANCIAL SYSTEM

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