Assessment of India’S Banking Sector Reforms from the Perspective of the Governance of the Banking System

Examining the impact of financial sector liberalization on India's banking system governance

Abstract

Strengtheningfinancial systems has been one of the central issues facing emerging marketsand developing economies. This is because sound financial systems serve as animportant channel for achieving economic growth through the mobilization offinancial savings, putting  them toproductive use and transforming various risks (Beck,  Levin and Loayza 1999;  King  andLevin 1993;  Rajan and Zingales1998;  Demirgüç-Kunt, Asli  and Maksimovic  1998;  Jayaratne and  Strahan  1996). Many countries adopted a  series of financial sector liberalizationmeasures in the late 1980s and early 1990s that included  interest  rate liberalization,  entry  deregulations,  reduction of  reserve requirements  and removal of credit allocation. In manycases, the timing of financial sector liberalization coincided with that ofcapital account liberalization. Domestic banks were given access to cheap loansfrom abroad and allocated those resources to domestic production sectors.