Rakesh Mohan: Financial sector reforms and monetary policy - the Indian
experience
Paper presented by Mr Rakesh Mohan, Deputy Governor of the Reserve Bank of India, at the
Conference on Economic Policy in Asia, organised by Stanford Center for International Development
and Stanford Institute for Economic Policy Research, Stanford, 2 June 2006.
I am indebted to R. Kannan, Muneesh Kapur, Indranil Bhattacharyya and Partha Ray for their assistance in preparing the paper.
The usual disclaimer applies. The references can be found on the Reserve Bank of India's website.
* * *
I. Introduction
Since the initiation of reforms in the early 1990s, the Indian economy has achieved high growth in an
environment of macroeconomic and financial stability. The period has been marked by broad based
economic reform that has touched every segment of the economy. These reforms were designed
essentially to promote greater efficiency in the economy through promotion of greater competition. The
story of Indian reforms is by now well-documented (e.g., Ahluwalia, 2002); nevertheless, what is less
appreciated is that India achieved this acceleration in growth while maintaining price and financial
stability. As a result of the growing openness, India was not insulated from exogenous shocks since
the second half of the 1990s. These shocks, global as well as domestic, included a series of financial
crises in Asia, Brazil and Russia, 9/11 terrorist attacks in the US, border tensions, sanctions imposed
in the aftermath of nuclear tests, political uncertainties, changes in the Government, and the current oil
shock. Nonetheless, stability could be maintained in financial markets. Indeed, inflation has been
contained since the mid-1990s to an average of around five per cent, distinctly lower than that of
around eight per cent per annum over the previous four decades. Simultaneously, the health of the
financial sector has recorded very significant improvement.
India's path of reforms has been different from most other emerging market economies: it has been a
measured, gradual, cautious, and steady process, devoid of many flourishes that could be observed in
other countries. I shall argue in this paper that reforms in the financial sector and monetary policy
framework have been a key component of the overall reforms that provided the foundation of an
increased price and financial stability. Reforms in these sectors have been well-sequenced, taking into
account the state of the markets in the various segments.
The main objective of the financial sector reforms in India initiated in the early 1990s was to create an
efficient, competitive and stable financial sector that could then contribute in greater measure to
stimulate growth. Concomitantly, the monetary policy framework made a phased shift from direct
instruments of monetary management to an increasing reliance on indirect instruments. However, as
appropriate monetary transmission cannot take place without efficient price discovery of interest rates
and exchange rates in the overall functioning of financial markets, the corresponding development of
the money market, Government securities market and the foreign exchange market became
necessary. Reforms in the various segments, therefore, had to be coordinated. In this process,
growing integration of the Indian economy with the rest of the world also had to be recognised and
provided for.
Against this backdrop, the coverage of this paper is threefold. First, I will give a synoptic account of the
reforms in financial sector and monetary policy. Second, this is followed by an assessment of these
reforms in terms of outcomes and the health of the financial sector. Finally, lessons emerging from the
Indian experience for issues of topical relevance for monetary authorities are considered in the final
Section.
II. Financial sector and monetary policy: objectives and reforms
Till the early 1990s the Indian financial sector could be described as a classic example of "financial
repression" a la McKinnon and Shaw. Monetary policy was subservient to the fisc. The financial
system was characterised by extensive regulations such as administered interest rates, directed credit
programmes, weak banking structure, lack of proper accounting and risk management systems and
lack of transparency in operations of major financial market participants (Mohan, 2004b). Such a
system hindered efficient allocation of resources. Financial sector reforms initiated in the early 1990s
have attempted to overcome these weaknesses in order to enhance efficiency of resource allocation in
the economy.
Simultaneously, the Reserve Bank took a keen interest in the development of financial markets,
especially the money, government securities and forex markets in view of their critical role in the
transmission mechanism of monetary policy. As for other central banks, the money market is the focal
point for intervention by the Reserve Bank to equilibrate short-term liquidity flows on account of its
linkages with the foreign exchange market. Similarly, the Government securities market is important
for the entire debt market as it serves as a benchmark for pricing other debt market instruments,
thereby aiding the monetary transmission process across the yield curve. The Reserve Bank had, in
fact, been making efforts since 1986 to develop institutions and infrastructure for these markets to
facilitate price discovery. These efforts by the Reserve Bank to develop efficient, stable and healthy
financial markets accelerated after 1991. There has been close co-ordination between the Central
Government and the Reserve Bank, as also between different regulators, which helped in orderly and
smooth development of the financial markets in India.
What have been the major contours of the financial sector reforms in India? For the sake of
completeness, it is useful to have a quick run-down of these:
• Removal of the erstwhile existing financial repression
• Creation of an efficient, productive and profitable financial sector
•
Enabling the process of price discovery by the market determination of interest rates that
improves allocative efficiency of resources
• Providing operational and functional autonomy to institutions
• Preparing the financial system for increasing international competition
•
Opening the external sector in a calibrated manner; and
•
Promoting financial stability in the wake of domestic and external shocks.
The financial sector reforms since the early 1990s could be analytically classified into two phases.1
The first phase - or the first generation of reforms - was aimed at creating an efficient, productive and
profitable financial sector which would function in an environment of operational flexibility and
functional autonomy. In the second phase, or the second generation reforms, which started in the
mid1990s, the emphasis of reforms has been on strengthening the financial system and introducing
structural improvements. Against this brief overview of the philosophy of financial sector reforms, let
me briefly touch upon reforms in various sectors and segments of the financial sector.
Banking sector
The main objective of banking sector reforms was to promote a diversified, efficient and competitive
financial system with the ultimate goal of improving the allocative efficiency of resources through
operational flexibility, improved financial viability and institutional strengthening. The reforms have
focussed on removing financial repression through reductions in statutory pre-emptions, while
stepping up prudential regulations at the same time. Furthermore, interest rates on both deposits and
lending of banks have been progressively deregulated (Box I).
Box I
Reforms in the Banking Sector
A. Competition Enhancing Measures
• Granting of operational autonomy to public sector banks, reduction of public ownership in public
sector banks by allowing them to raise capital from equity market up to 49 per cent of paid-up
capital.
•
Transparent norms for entry of Indian private sector, foreign and joint-venture banks and
insurance companies, permission for foreign investment in the financial sector in the form of
Foreign Direct Investment (FDI) as well as portfolio investment, permission to banks to diversify
product portfolio and business activities.
•
Roadmap for presence of foreign banks and guidelines for mergers and amalgamation of private
sector banks and banks and NBFCs.
• Guidelines on ownership and governance in private sector banks.
B. Measures Enhancing Role of Market Forces
•
Sharp reduction in pre-emption through reserve requirement, market determined pricing for
government securities, disbanding of administered interest rates with a few exceptions and
enhanced transparency and disclosure norms to facilitate market discipline.
•
Introduction of pure inter-bank call money market, auction-based repos-reverse repos for
shortterm liquidity management, facilitation of improved payments and settlement mechanism.
•
Significant advancement in dematerialisation and markets for securitised assets are being
developed.
C. Prudential Measures
•
Introduction and phased implementation of international best practices and norms on
riskweighted capital adequacy requirement, accounting, income recognition, provisioning and
exposure.
•
Measures to strengthen risk management through recognition of different components of risk,
assignment of risk-weights to various asset classes, norms on connected lending, risk
concentration, application of marked-to-market principle for investment portfolio and limits on
deployment of fund in sensitive activities.
•
'Know Your Customer' and 'Anti Money Laundering' guidelines, roadmap for Basel II, introduction
of capital charge for market risk, higher graded provisioning for NPAs, guidelines for ownership
and governance, securitisation and debt restructuring mechanisms norms, etc.
D. Institutional and Legal Measures
•
Setting up of Lok Adalats (people's courts), debt recovery tribunals, asset reconstruction
companies, settlement advisory committees, corporate debt restructuring mechanism, etc. for
quicker recovery/ restructuring.
•
Promulgation of Securitisation and Reconstruction of Financial Assets and Enforcement of
Securities Interest (SARFAESI) Act, 2002 and its subsequent amendment to ensure creditor
rights.
• Setting up of Credit Information Bureau of India Limited (CIBIL) for information sharing on
defaulters as also other borrowers.
•
Setting up of Clearing Corporation of India Limited (CCIL) to act as central counter party for
facilitating payments and settlement system relating to fixed income securities and money
market instruments.
E. Supervisory Measures
•
Establishment of the Board for Financial Supervision as the apex supervisory authority for
commercial banks, financial institutions and non-banking financial companies.
• Introduction of CAMELS supervisory rating system, move towards risk-based supervision,
consolidated supervision of financial conglomerates, strengthening of off-site surveillance
through control returns.
•
Recasting of the role of statutory auditors, increased internal control through strengthening of
internal audit.
•
Strengthening corporate governance, enhanced due diligence on important shareholders, fit and
proper tests for directors.
F. Technology Related Measures
• Setting up of INFINET as the communication backbone for the financial sector, introduction of
Negotiated Dealing System (NDS) for screen-based trading in government securities and Real
Time Gross Settlement (RTGS) System.
As the Indian banking system had become predominantly government owned by the early 1990s,
banking sector reforms essentially took a two pronged approach. First, the level of competition was
gradually increased within the banking system while simultaneously introducing international best
practices in prudential regulation and supervision tailored to Indian requirements. In particular, special
emphasis was placed on building up the risk management capabilities of Indian banks while measures
were initiated to ensure flexibility, operational autonomy and competition in the banking sector.
Second, active steps were taken to improve the institutional arrangements including the legal
framework and technological system. The supervisory system was revamped in view of the crucial role
of supervision in the creation of an efficient banking system.
Measures to improve the health of the banking system have included (i) restoration of public sector
banks' net worth through recapitalisation where needed; (ii) streamlining of the supervision process
with combination of on-site and off-site surveillance along with external auditing; (iii) introduction of risk
based supervision; (iv) introduction of the process of structured and discretionary intervention for
problem banks through a prompt corrective action (PCA) mechanism; (v) institutionalisation of a
mechanism facilitating greater coordination for regulation and supervision of financial conglomerates;
(vi) strengthening creditor rights (still in process); and (vii) increased emphasis on corporate
governance.
Consistent with the policy approach to benchmark the banking system to the best international
standards with emphasis on gradual harmonisation, all commercial banks in India are expected to start
implementing Basel II with effect from March 31, 2007 - though a marginal stretching beyond this date
should not be ruled out in view of the latest indications on the state of preparedness (Reddy, 2006a).
Recognising the differences in degrees of sophistication and development of the banking system, it
has been decided that the banks will initially adopt the Standardised Approach for credit risk and the
Basic Indicator Approach for operational risk. After adequate skills are developed, both by the banks
and also by the supervisors, some of the banks may be allowed to migrate to the Internal Rating
Based (IRB) Approach. Although implementation of Basel II will require more capital for banks in India,
the cushion available in the system - at present, the Capital to Risk Assets Ratio (CRAR) is over 12
per cent - provides some comfort. In order to provide banks greater flexibility and avenues for meeting
the capital requirements, the Reserve Bank has issued policy guidelines enabling issuance of several
instruments by the banks viz., innovative perpetual debt instruments, perpetual non-cumulative
preference shares, redeemable cumulative preference shares and hybrid debt instruments.
Reforms in the monetary policy framework
The basic emphasis of monetary policy since the initiation of reforms has been to reduce market
segmentation in the financial sector through increased interlinkages between various segments of the
financial market including money, government security and forex market. The key policy development
that has enabled a more independent monetary policy environment as well as the development of
Government securities market was the discontinuation of automatic monetisation of the government's
fiscal deficit since April 1997 through an agreement between the Government and the Reserve Bank
of India in September 1994. In order to meet the challenges thrown by financial liberalisation and the
growing complexities of monetary management, the Reserve Bank switched from a monetary targeting
framework to a multiple indicator approach from 1998-99. Short-term interest rates have emerged as
the key indicators of the monetary policy stance. A significant shift is the move towards market-based
instruments away from direct instruments of monetary management. In line with international trends,
the Reserve Bank has put in place a liquidity management framework in which market liquidity is
managed through a mix of open market (including repo) operations (OMOs), changes in reserve
requirements and standing facilities, reinforced by changes in the policy rates, including the Bank Rate
and the short term (overnight) policy rate. In order to carry out these market operations effectively, the
Reserve Bank has initiated several measures to strengthen the health of its balance sheet.
Over the past few years, the process of monetary policy formulation has become relatively more
articulate, consultative and participative with external orientation, while the internal work processes
have also been re-engineered. A recent notable step in this direction is the constitution of a Technical
Advisory Committee on Monetary Policy comprising external experts to advise the Reserve Bank on
the stance of monetary policy (Box II).
BOX II
Reforms in the Monetary Policy Framework
Objectives
•
Twin objectives of "maintaining price stability" and "ensuring availability of adequate
credit to productive sectors of the economy to support growth" continue to govern
the stance of monetary policy, though the relative emphasis on these objectives has
varied depending on the importance of maintaining an appropriate balance.
• Reflecting the increasing development of financial market and greater liberalisation,
use of broad money as an intermediate target has been de-emphasised and a
multiple indicator approach has been adopted.
•
Emphasis has been put on development of multiple instruments to transmit liquidity
and interest rate signals in the short-term in a flexible and bi-directional manner.
•
Increase of the interlinkage between various segments of the financial market
including money, government security and forex markets.
Instruments
•
Move from direct instruments (such as, administered interest rates, reserve
requirements, selective credit control) to indirect instruments (such as, open market
operations, purchase and repurchase of government securities) for the conduct of
monetary policy.
•
Introduction of Liquidity Adjustment Facility (LAF), which operates through repo and
reverse repo auctions, effectively provide a corridor for short-term interest rate. LAF
has emerged as the tool for both liquidity management and also as a signalling
devise for interest rate in the overnight market.
• Use of open market operations to deal with overall market liquidity situation
especially those emanating from capital flows.
•
Introduction of Market Stabilisation Scheme (MSS) as an additional instrument to
deal with enduring capital inflows without affecting short-term liquidity management
role of LAF.
Developmental Measures
•
Discontinuation of automatic monetisation through an agreement between the
Government and the Reserve Bank. Rationalisation of Treasury Bill market.
Introduction of delivery versus payment system and deepening of inter-bank repo
market.
•
Introduction of Primary Dealers in the government securities market to play the role
of market maker.
• Amendment of Securities Contracts Regulation Act (SCRA), to create the regulatory
framework.
•
Deepening of government securities market by making the interest rates on such
securities market related. Introduction of auction of government securities.
Development of a risk-free credible yield curve in the government securities market
as a benchmark for related markets.
•
Development of pure inter-bank call money market. Non-bank participants to
participate in other money market instruments.
• Introduction of automated screen-based trading in government securities through
Negotiated Dealing System (NDS). Setting up of risk-free payments and system in
government securities through Clearing Corporation of India Limited (CCIL). Phased
introduction of Real Time Gross Settlement (RTGS) System.
•
Deepening of forex market and increased autonomy of Authorised Dealers.
Institutional Measures
• Setting up of Technical Advisory Committee on Monetary Policy with outside
experts to review macroeconomic and monetary developments and advise the
Reserve Bank on the stance of monetary policy.
• Creation of a separate Financial Market Department within the RBI.
Following the reforms, the financial markets have now grown in size, depth and activity paving the way
for flexible use of indirect instruments by the Reserve Bank to pursue its objectives. It is recognised
that stability in financial markets is critical for efficient price discovery. Excessive volatility in exchange
rates and interest rates masks the underlying value of these variables and gives rise to confusing
signals. Since both the exchange rate and interest rate are the key prices reflecting the cost of money,
it is particularly important for the efficient functioning of the economy that they be market determined
and be easily observed. The Reserve Bank has, therefore, put in place a liquidity management
framework in the form of a liquidity adjustment facility (LAF) for the facilitation of forex and money
market transactions that result in price discovery sans excessive volatility. The LAF coupled with
OMOs and the Market Stabilisation Scheme (MSS) has provided the Reserve Bank greater flexibility
to manage market liquidity in consonance with its policy stance. The introduction of LAF had several
advantages (Mohan, 2006b).
•
First and foremost, it helped the transition from direct instruments of monetary control to
indirect and, in the process, certain dead weight loss for the system was saved.
• Second, it has provided monetary authorities with greater flexibility in determining both the
quantum of adjustment as well as the rates by responding to the needs of the system on a
daily basis.
•
Third, it enabled the Reserve Bank to modulate the supply of funds on a daily basis to meet
day-to-day liquidity mismatches.
• Fourth, it enabled the Reserve Bank to affect demand for funds through policy rate changes.
• Fifth and most important, it helped stabilise short-term money market rates.
LAF has now emerged as the principal operating instrument of monetary policy. Although there is no
formal targeting of a point overnight interest rate, the LAF is designed to nudge overnight interest
rates within a specified corridor, the difference between the fixed repo and reverse repo rates
currently being 100 basis points. The evidence suggests that this effort has been largely successful
with the overnight interest rate moving out of this corridor for only a few brief periods. The LAF has
enabled the Reserve Bank to de-emphasise targeting of bank reserves and focus increasingly on
interest rates. This has helped in reducing the cash reserve ratio (CRR) without loss of monetary
control.
Given the growing role played by expectations, the stance of monetary policy and its rationale are
communicated to the public in a variety of ways. The enactment of the Fiscal Responsibility and
Budget Management Act, 2003 has strengthened the institutional mechanism further: from April 2006
onwards, the Reserve Bank is no longer permitted to subscribe to government securities in the primary
market. The development of the monetary policy framework has also involved a great deal of
institutional initiatives to enable efficient functioning of the money market: development of appropriate
trading, payments and settlement systems along with technological infrastructure.
Financial markets
The success of a framework that relies on indirect instruments of monetary management such as
interest rates, is contingent upon the extent and speed with which changes in the central bank's policy
rate are transmitted to the spectrum of market interest rates and exchange rate in the economy and
onward to the real sector. Given the critical role played by financial markets in this transmission
mechanism, the Reserve Bank has taken a number of initiatives to develop a pure inter-bank money
market. A noteworthy and desirable development has been the substantial migration of money market
activity from the uncollateralised call money segment to the collateralised market repo and
collateralised borrowing and lending obligations (CBLO) markets. The shift of activity from
uncollateralised to collateralised segments of the market has largely resulted from measures relating
to limiting the call market transactions to banks and primary dealers only. This policy-induced shift is in
the interest of financial stability and is yielding results.
Concomitantly, efforts have been made to broaden and deepen the Government securities market and
foreign exchange market so as to enable the process of efficient price discovery in respect of interest
rates and the exchange rate (Boxes III and IV).
It is pertinent to note that the phased approach to development of financial markets has enabled RBI's
withdrawal from the primary market since April 1, 2006. This step completes the transition to a fully
market based system in the G-sec market. Looking ahead, as per the recommendations of the Twelfth
Finance Commission, the Central Government would cease to raise resources on behalf of State
Governments, who, henceforth, have to access the market directly. Thus, State Governments'
capability in raising resources will be market determined and based on their own financial health. In
order to ensure a smooth transition to the new regime, restructuring of current institutional processes
has already been initiated (Mohan, 2006c). These steps are helping to achieve the desired integration
in the conduct of monetary operations.
Box III
Reforms in the Government Securities Market
Institutional Measures
•
Administered interest rates on government securities were replaced by an auction system for
price discovery.
• Automatic monetisation of fiscal deficit through the issue of ad hoc Treasury Bills was
phased out.
•
Primary Dealers (PD) were introduced as market makers in the government securities
market.
•
For ensuring transparency in the trading of government securities, Delivery versus Payment
(DvP) settlement system was introduced.
• Repurchase agreement (repo) was introduced as a tool of short-term liquidity adjustment.
Subsequently, the Liquidity Adjustment Facility (LAF) was introduced.
•
LAF operates through repo and reverse repo auctions and provide a corridor for short-term
interest rate. LAF has emerged as the tool for both liquidity management and also signalling
device for interest rates in the overnight market. The Second LAF (SLAF) was introduced in
November 2005.
•
Market Stabilisation Scheme (MSS) has been introduced, which has expanded the
instruments available to the Reserve Bank for managing the enduring surplus liquidity in the
system.
•
Effective April 1, 2006, RBI has withdrawn from participating in primary market auctions of
Government paper.
•
Banks have been permitted to undertake primary dealer business while primary dealers are
being allowed to diversify their business.
• Short sales in Government securities is being permitted in a calibrated manner while
guidelines for 'when issued' market have been issued recently.
Increase in Instruments in the Government Securities Market
•
91-day Treasury bill was introduced for managing liquidity and benchmarking. Zero Coupon
Bonds, Floating Rate Bonds, Capital Indexed Bonds were issued and exchange traded
interest rate futures were introduced. OTC interest rate derivatives like IRS/ FRAs were
introduced.
•
Outright sale of Central Government dated security that are not owned have been permitted,
subject to the same being covered by outright purchase from the secondary market within the
same trading day subject to certain conditions.
•
Repo status has been granted to State Government securities in order to improve secondary
market liquidity.
Enabling Measures
• Foreign Institutional Investors (FIIs) were allowed to invest in government securities subject to
certain limits.
•
Introduction of automated screen-based trading in government securities through Negotiated
Dealing System (NDS).
•
Setting up of risk-free payments and settlement system in government securities through
Clearing Corporation of India Limited (CCIL).
•
Phased introduction of Real Time Gross Settlement System (RTGS).
•
Introduction of trading in government securities on stock exchanges for promoting retailing in
such securities, permitting non-banks to participate in repo market.
• Recent measures include introduction of NDS-OM and T+1 settlement norms.
As regards the foreign exchange market, reforms focused on market development with inbuilt
prudential safeguards so that the market would not be destabilised in the process (Reddy, 2002). The
move towards a market-based exchange rate regime in 1993 and the subsequent adoption of current
account convertibility were the key measures in reforming the Indian foreign exchange market. Banks
are increasingly being given greater autonomy to undertake foreign exchange operations. In order to
deepen the foreign exchange market, a large number of products have been introduced and entry of
new players has been allowed in the market (Box IV).
Summing up, reforms were designed to enable the process of efficient price discovery and induce
greater internal efficiency in resource allocation within the banking system. While the policy measures
in the pre-1990s period were essentially devoted to financial deepening, the focus of reforms in the
last decade and a half has been engendering greater efficiency and productivity in the banking
system. Reforms in the monetary policy framework were aimed at providing operational flexibility to
the Reserve Bank in its conduct of monetary policy by relaxing the constraint imposed by passive
monetisation of the fisc.
Box IV
IN THE
REFORMS FOREIGN EXCHANGE MARKET
Exchange Rate Regime
•
Evolution of exchange rate regime from a single-currency fixed-exchange rate system to fixing
the value of rupee against a basket of currencies and further to market-determined floating
exchange rate regime.
• Adoption of convertibility of rupee for current account transactions with acceptance of Article
VIII of the Articles of Agreement of the IMF. De facto full capital account convertibility for non
residents and calibrated liberalisation of transactions undertaken for capital account purposes
in the case of residents.
Institutional Framework
•
Replacement of the earlier Foreign Exchange Regulation Act (FERA), 1973 by the market
friendly Foreign Exchange Management Act, 1999. Delegation of considerable powers by RBI
to Authorised Dealers to release foreign exchange for a variety of purposes.
Increase in Instruments in the Foreign Exchange Market
•
Development of rupee-foreign currency swap market.
• Introduction of additional hedging instruments, such as, foreign currency-rupee options.
Authorised dealers permitted to use innovative products like cross-currency options, interest
rate swaps (IRS) and currency swaps, caps/collars and forward rate agreements (FRAs) in the
international forex market.
Liberalisation Measures
•
Authorised dealers permitted to initiate trading positions, borrow and invest in overseas
market subject to certain specifications and ratification by respective Banks' Boards. Banks
are also permitted to fix interest rates on non-resident deposits, subject to certain
specifications, use derivative products for asset-liability management and fix overnight open
position limits and gap limits in the foreign exchange market, subject to ratification by RBI.
• Permission to various participants in the foreign exchange market, including exporters, Indians
investing abroad, FIIs, to avail forward cover and enter into swap transactions without any limit
subject to genuine underlying exposure.
• FIIs and NRIs permitted to trade in exchange-traded derivative contracts subject to certain
conditions.
•
Foreign exchange earners permitted to maintain foreign currency accounts. Residents are
permitted to open such accounts within the general limit of US $ 25, 000 per year.
III. Financial sector and monetary policy reforms: an assessment
Banking sector
An assessment of the banking sector shows that banks have experienced strong balance sheet
growth in the post-reform period in an environment of operational flexibility. Improvement in the
financial health of banks, reflected in significant improvement in capital adequacy and improved asset
quality, is distinctly visible. It is noteworthy that this progress has been achieved despite the adoption
of international best practices in prudential norms. Competitiveness and productivity gains have also
been enabled by proactive technological deepening and flexible human resource management. These
significant gains have been achieved even while renewing our goals of social banking viz., maintaining
the wide reach of the banking system and directing credit towards important but disadvantaged
sectors of society. A brief discussion on the performance of the banking sector under the reform
process is given below.
Spread of banking
The banking system's w