Impact of Banking Sector Reforms – An Analysis

Abstract

The financial sector has played an important role in India’s economic development. With the view of utilizing the scarce financial resources for speedy economic development, the financial sector in India was subjected to various controls and regulati ons. This ‘Control Raj’ became more pronounced in the late 1960’s in the aftermath of the famous bank nationalization. The regime definitely helped in accelerating the financial and economic development. However the financial sector at a later stage started suffering from ‘financial repression’ as argued by M C McKinnon and Shaw (1973) , where the real interest rates turned out to be negative or zero, thus discouraging savings, investment and adversely affecting the pace of economic development. These controls and regulations also affected the financial, health of the banks and financial institutions.