Phase III of the Indian financial system covers the period after the nineties, starting from 1991 onwards. This period was marked by several significant changes and reforms, which had a major impact on the organization and functioning of the Indian financial system. Here is a detailed overview of the organization of the Indian financial system during this period:
- Liberalization, Privatization, and Globalization:
The Indian government adopted a policy of liberalization, privatization, and globalization (LPG) in the early nineties, which aimed to promote economic growth and development by opening up the economy to foreign investment and competition. As a result of this policy, several sectors, including the financial sector, were opened up to private players, and foreign investment was allowed.
- Establishment of New Private Sector Banks:
In 1993, the RBI issued licenses to 10 new private sector banks, including ICICI Bank and HDFC Bank. These banks were allowed to compete with the nationalized banks and played a significant role in increasing competition and innovation in the banking sector.
- Abolition of Controlled Interest Rates:
As part of the liberalization process, the government abolished controlled interest rates and allowed banks to set their own interest rates based on market forces. This move led to an increase in competition and innovation in the banking sector.
- Establishment of Non-Banking Financial Companies:
The government allowed the establishment of Non-Banking Financial Companies (NBFCs), which were allowed to provide various financial services such as lending, leasing, and investment banking. NBFCs played a significant role in increasing credit availability and promoting the development of the financial sector.
- Establishment of Securities and Exchange Board of India:
The Securities and Exchange Board of India (SEBI) was established in 1992 to regulate the securities markets and promote investor protection. SEBI played a crucial role in promoting transparency and accountability in the capital markets.
- Introduction of Derivatives Trading:
The government allowed the introduction of derivatives trading in 2000, which provided investors with new opportunities for risk management and hedging.
- Establishment of Insurance Regulatory and Development Authority:
The Insurance Regulatory and Development Authority (IRDA) was established in 2000 to regulate the insurance industry and promote the development of the sector. IRDA played a key role in increasing competition and innovation in the insurance sector.
In conclusion, Phase III of the Indian financial system was marked by significant changes and reforms aimed at promoting economic growth and development. The liberalization, privatization, and globalization policies of the government led to increased competition and innovation in the financial sector, and the establishment of new private sector banks and NBFCs played a significant role in increasing credit availability. The introduction of derivatives trading and the establishment of SEBI and IRDA played crucial roles in promoting transparency and accountability in the financial sector.