Finance and Banking is the cornerstone for the economic growth of any nation today. The topics are so intertwined that effective management of finance measures implies sound banking practices prevalent in the country. Banking and Finance policies are especially relevant to the developing nations of the world where a progressive financial system can act as partner of development by engaging in resource mobilization without merely functioning as a profit centre.
The credit planning of a developing country should be closely related with development planning of the region. The main problem of the less developed countries, in this context, is the absence of a mediating force or mechanism between the highly organized financial institutions and the unorganized private intermediaries, whose savings constitute the bulk of the total savings of the economy, thus acting as the foundation of the financial market of the country.
Finance is the key engine of investment and hence the driving force behind the growth of a nation. Finance deals with the effective allocation and distribution of monetary assets by individuals, businesses and organizations over time taking into account the associated risks. More specifically, finance deals with channeling resources or wealth from savers to borrowers, which may provide for more productive uses for the resources. This is not possible without an efficient financial and banking system, otherwise lending will be more costly and risky.
In turn, it can be observed that effective diversion and distribution of resources from less productive to more-productive uses as facilitated by the banking or the lending institutions will raise income levels for the borrower and lender alike. Trade, specialization of production or productive activities, professionalism, savings, efficient use of resources and risk-taking are the essential features of a growing economy which can aptly be stimulated by a well-functioning banking and financial system as a basic economic infrastructure.
Finance and Banking can also be used to mean the state of the banking and finance services in the countries around the world. In case of India, banking and finance topics can range from the growth in credit in the economy, the performance of the banking sector, the fluctuations in the domestic exchange rate, simplifications of the tax regime and the monetary policy announced by the Reserve Bank of India (RBI).
RBI has warned the economy of a spiraling inflation and hence has forwarded remedial measures to prevent the scourge such as the rise in the Repo rate, the Cash Reserve Ratio (CRR) and a stifling of credit offered by the banks. However, as part of its Annual Credit Policy for the year 2007-2008, RBI has announced policies like unchanged Bank rates, Reverse Repo and Repo rates and the CRR to be kept at a steady level of 6.5%.
But as predicted by the Indian Institute of Banking and Finance (IIBF), the country is expected to witness a rise in credit by at least 20%-25%, which will further put pressure on inflation rate which had crossed the mark of 6% recently. However, the RBI has a target of maintaining the annual inflation rate at around 5% and the growth rate in the Gross Domestic Product (GDP) is set to grow at 8%-8.5% annually.
The money supply in the economy is also set to be around 17%-17.5% for the year 2007-08 and the RBI has also proposed steps to contain the rate of deposits created by the commercial banks, which had grown at almost 18% in the last fiscal year. A proposal has also been mooted in the annual credit policy that the average cut-off yield on 182 day Treasury Bills is to be used as a benchmark for floating rate bonds.
In terms of international banking and finance news, HSBC is expanding its consumer credit business in the USA and Santander is transforming its services to accommodate new immigrant account holders. Some of the key banks dealing in finance issues worldwide are the Bank for International Settlements, European Central Bank, National Information Center of Banking Information and the United Nations Conference on Trade and Development (UNCTAD).