Financial-sector reform in India: Bridging the gulf

SINCE taking office in September Raghuram Rajan, the governor of India’s central bank, has championed financial-sector liberalisation as a way to boost growth and help the poor. Change is risky, he has said. “But as India develops, not changing is even riskier.”India’s financial system is like a ramshackle engine lovingly maintained by a sect of oil-spattered engineers and wearily tolerated by most people who depend on it. After Indira Gandhi, then prime minister, nationalised most banks in 1969, India slipped towards financial socialism, with a central bank that printed rupees on politicians’ command. When India opened up in 1991 a wave of reform took place. The system today is a mishmash. Market forces have a role, but the state looms large.There are several well-run private banks, such as HDFC. But public-sector banks (most of which are listed but under state control) make three-quarters of all loans. Foreign banks’ market share is 5%. Unlicensed moneylenders thrive, hinting at lots of unmet demand for credit.The Reserve Bank of India (RBI) is now fairly independent and no longer sets the rates of interest banks charge, but it still manipulates the flow of…

Link to article: www.economist.com/news/finance-and-economics/21590928-financial-system-intended-promote-equality-and-stability-no-longer?fsrc=rss|fec

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