Financial Sector Budget - Financial Sector Reforms, Indian Interim Budget 2009

By: EconomyWatch   Date: 30 June 2010

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Financial Sector Budget - Financial Sector Reforms. The Indian Government has made considerable progress in improving the health of its financial institutions, together with better regulatory oversight and streamlining of regulations. The focus of the Interim Budget, however, has to shift in response to the financial crisis and its effects on the Indian Economy, in particular providing guarantees that it will recapitalize Indian backs if needed to maintain Capital to Risk Weighted Assets Ratio (CRAR) of 12 per cent.

Over past years, technological, institutional and legal reforms in the financial sector have resulted in Public Sector Banks achieving significant improvement in their financial health. The asset quality has improved and Non Performing Loans have declined considerably from 7.8 per cent on March 31, 2004 to 2.3 per cent on March 31, 2008.

In the case of Regional Rural Banks (RRBs), a process of amalgamation and recapitalization of those with negative networth has been initiated. Over the last four years, 196 RRBs have been merged into 85 RRBs. The Central Government has contributed Rs.652 crore for the capitalization of RRBs upto December 31, 2008.

The Indian Government has undertaken a number of reforms in the last four years to deepen and widen the Securities markets and strengthen the regulatory mechanisms for these markets. The initiatives include reforms in the corporate bond market, participation of foreign institutional investors, foreign investment in stock exchanges, setting up of a dedicated training and research institute in the securities market, making PAN the sole identification number, streamlining the process and grading of initial public offering etc. Systems and practices have been put in place to promote a safe, transparent and efficient market and to protect market integrity.

The Government undertook a comprehensive revision of the Companies Act, 1956 to make it a compact law that, while responding to the changes in the business environment, would enable adoption of internationally accepted best practices. The Companies Bill, 2008 based on this exercise, has been introduced in Parliament.

As part of the Interim Budget Indian Government is also committed to recapitalizing the public sector banks over next two years to enable them to maintain Capital to Risk Weighted Assets Ratio (CRAR) of 12 per cent and to ensure that credit growth continues to sustain economic growth.

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