Why did RBI have to change its role from controller to facilitator of financial sector in India?
Why did RBI have to change its role from controller to facilitator of financial sector in India?
RBI used to control and regulate all the banks and other financial institutions in India prior to 1991. The RBI used to decide the amount of money that the banks can lend and the amount they should keep as reserves, determine the interest rates and prioritise lending to various sectors apart from regulating foreign exchange. However, all this changed with the declaration of the New Industrial Policy (NEP). One of the major aims of the financial sector reforms was to transform the role of RBI from regulator to facilitator of financial sector. This means that greater autonomy may be granted to the financial sector in taking decisions on various matters without consulting the RBI.
The reform policies led to the establishment of private sector banks. Banks were given freedom to set up new branches and determine the rate of interest to be offered on various deposits. Banks have been given permission to generate resources from India and abroad through capital market. All this has led to substantial growth in the financial sector.
RBI used to control and regulate all the banks and other financial institutions in India prior to 1991. The RBI used to decide the amount of money that the banks can lend and the amount they should keep as reserves, determine the interest rates and prioritise lending to various sectors apart from regulating foreign exchange. However, all this changed with the declaration of the New Industrial Policy (NEP). One of the major aims of the financial sector reforms was to transform the role of RBI from regulator to facilitator of financial sector. This means that greater autonomy may be granted to the financial sector in taking decisions on various matters without consulting the RBI.
The reform policies led to the establishment of private sector banks. Banks were given freedom to set up new branches and determine the rate of interest to be offered on various deposits. Banks have been given permission to generate resources from India and abroad through capital market. All this has led to substantial growth in the financial sector.
