The ongoing reforms process, growing use of technology, increased competition and product innovation have all put the banking sector on a high growth trajectory. However, significant challenges lie ahead for the banks in the country as they gear up to embrace international standards and best practices, particularly Basel II norms.The banking sector in India has undergone remarkable changes since the economic reforms were initiated in 1991-92. The period has been marked by a slew of reforms in the sector, which provided the much-needed impetus for the growth of the sector as a whole.
Some of the major reform initiatives during this period include deregulation of interest rates, adoption of prudential norms in terms of capital adequacy, asset classification, and provisioning, lowering of reserve requirements in terms of Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR), dilution of government equity holding in Public Sector Banks (PSBs), opening of the sector to private participation, permission to foreign banks to expand their operations through subsidiaries, introduction of universal banking, greater emphasis on risk management by allowing banks to participate in instruments such as interest rate swaps, cross country forward contracts, liquidity adjustment facility, liberalization of FDI norms in banks, and the introduction of Real Time Gross Settlement (RTGS), among others. These measures along with Reserve Bank of India's (RBI) efforts to adopt international banking standards and best practices as prescribed in the Basel Accords have no doubt helped the domestic banking industry enter a new era. Further, it has pushed banks to put greater emphasis on risk management and corporate governanceareas that were until now ignored. |
