Financial and Banking Reforms in India: Challenges and Opportunities

Financial sector reforms means gradual liberalization of financial market and its players are opening of all types of depository institutions and other non-depository financial institutions to the private sector. Financial sector is the backbone or engine sof growth of any economy whether developed or developing or in transitions or emerging. It mobilize and allocates financial resources most productively and efficiently and induces investment, increases employment opportunities and productivity, achieves growth targets and attains overall macro-economic development. The economic reforms initiated by the govt. of India about two and half decades ago have changed the landscape of several sectors of the Indian economy. The Indian banking sector is no exception. This sector is going through major changes because of economic reforms. The role of banking industry is very important as one of the leading and mostly essential service sector financial and banking reforms have already brought about significant improvement in monetary and credit aggregates in India. A financial sector reform has certainly had a noticeable impact on the cost of intermediation: real interest rates and gross interest margins. However, there is a scope for even more improvement over the next years as competition enhancing measures and administrative cost reduction interventions are adopted. Today the service sector is contributing half of the Indian GDP and the banking is most popular service sector in India. The significant role of banking industry is essential to speed up the social economic development. Banks plays an important role in the economic development of developing countries like India. The underlying objectives of reforms were to make the banking system more competitive and profitable with the ultimate goal of improving the allocative efficiency of resources through operational flexibility, improved financial viability and institutional strengthening.. Indian banks especially the public sector banks and the old private banks are lagging behind their competitors in terms of both productivity and profitability with the exception of the state bank of India and its associates. The biggest opportunity for the Indian banking system today is the Indian consumers. The Indian consumer seeks to fulfill his lifestyle aspirations at younger age with an optimal combination of equity and debt to finance consumption and asset creation. This is leading to a growing demand for competitive, sophisticated retail banking services. The present study is based on the secondary sources of data, which is taken from various publications and related literature. This paper explains the changing banking scenario, the impact of economic reforms and analyses the challenges and opportunities of national and commercial banks.