Question

Discuss the financial sector reforms as part of the New Economic Policy of 1991.

Answer 1

Financial sector reforms included the following reforms:

a) Change in the role of the RBI: The role of RBI was reduced from regulator to facilitator of the financial sector.

b) Origin of private banks: The reform policies led to the establishment of private sector banks.

c) Increase in the limit of foreign investment: Limit of foreign investment in banks was raised to 51%.

d) Ease in expansion process: Banks were given freedom to set up new branches, expand and diversify without the approval of the RBI.