Financial reforms to equip institutions for a globalised India

In a fast-changing world, financial policy has to catch up with the needs of future India that people are aspiring to build. The Economic Survey 2013-14 mentions that the next wave of reforms will be through strengthening the institutional foundation – both laws and organisations – improving and polishing the financial processes; and by taking well-designed policy decisions that will enhance clarity, consistency, and transparency for a globalised India.

The growth rate of aggregate bank deposits marginally moderated to 14.1 per cent in 2013-14 from 14.2 per cent in the previous year. Even the moderate growth has been due mainly to large accretion to non-resident Indian (NRI) deposits.

Growth in bank credit increased by 13.9 per cent in 2013-14, compared to a growth of 14.1 per cent in 2012-13. The Reserve Bank of India (RBI) continued with the policy of monetary easing during the first quarter of 2013-14 to support growth in the face of moderation of wholesale price index (WPI) inflation and reduced the repo rate by 25 basis points (bps) to 7.25 per cent in May 2013. Following the exceptional measures taken by RBI in Q2 2013-14, both deposit and lending rates firmed up by September 2013.

The Economic Survey says that the factors impeding the pace of smooth monetary policy transmission to the credit market include rigidities in repricing of fixed deposits, size of government borrowings, level of non-performing assets (NPAs), high inflation and the significant presence of informal finance.

The survey says that the Indian banking sector, which exhibited considerable resilience in the immediate aftermath of the global financial crisis, has been impacted by the global and domestic economic slowdown over the last two years.