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Strengthening banking system has been one of the central issues facing emerging markets and developing economies. This is because sound banking system serve as an important channel for achieving economic growth through the mobilization of financial savings, putting them to productive use and transforming various risks.
The efficient, dynamic and effective banking sector plays a decisive role in accelerating the rate of economic growth in any economy. In the wake of contemporary economic changes in the world economy and other domestic crises like adverse balance of payments problem, increasing fiscal deficits etc., our country too embarked upon economic reforms. The govt. of India introduced economic and financial sector reforms in 1991 and banking sector reforms were part and parcel of financial sector reforms. These were initiated in 1991 to make Indian banking sector more efficient, strong and dynamic.
The recommendations of the Narishiman Commission-I in 1991 provided the blue print for the first generation reforms of the financial sector, the period 1992-97 witnessed the laying of the foundations for reforms in the banking system.
The Report of the Narishiman Committee- II in 1998 provided the road map of the second generation reforms processes. Y.V. Reddy noted that the first generation reforms were undertaken early in the reform cycle, and the reforms in the financial sector were initiated in a well structured, sequenced and phased manner with cautious and proper sequencing, mutually reinforcing measures; complimentarily between forms in banking sector and changes in fiscal, external and monetary policies, developing financial infrastructure and developing markets. By way of visible impact, one finds the presence of a diversified banking system. Another important aspect is that apart from the growth of banks and commercial banks there are various other financial intermediaries including mutual funds. NBFCs, primary dealers housing...
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