Indian Financial System-Opportunities and Challenges for Banking Sector:An Assessment

Abstract

Economic development of a nation relies on the soundness of the nation's financial system. The Financial system acts as nerve system of a nation's economy. Indian financial system is undergoing restructuring process for efficient mobilization and allocation of resources it can be segmented into organized, unorganized semi-organized systems. The organized system has money and capital markets as major components and also set of facilitators catering to financial intermediation this supports increasing capital accumulation through institutionalization of savings and investment. The financial system consists of many subsystems like financial services, banks, financial institutions etc. it provides the principal means by which savings are transformed into investment. Given its role in the allocation of resources, the efficient functioning of the financial system is of critical importance to a modern economy. The banking sector is a major player in the system concentrating its business in organized and urban sector. Financial system is a key weapon in monitoring the economic progress of any country, because eventually all efforts and resources are measured in financial terms. The paper focuses on the Banking sector which has seen major changes with RBI deregulating interest rates, FDI investments, monetary policy of Government, multiple regulators and the emergence of strong domestic private players like HDFC, ICICI, AXIS, as well as foreign banks. At the same time, there is some evidence of credit constraints for India's SME firms that rely heavily on trade credit. Corporate governance norms in India have strengthened rapidly in the past few years. In the last few years microfinance has contributed in a big way to financial inclusion and is now attracting venture capital and for-profit companies - both domestic and foreign.