In a big break with the past, the government adopted a policy of non-discrimination between foreign, national, state or private sector banks. The market was opened to foreign banks and insurance companies. While barriers to entry have come down, required prudential standards have gone up. Banks are required to diversify risk and have better capital adequacy ratios than the international standard. Loan loss reserves requirements are strictly enforced.
Banks are also subject to strong disclosure requirements.
Their loan portfolio quality is published each month and they are required to get credit ratings reviewed by two credit rating agencies twice a year. The result has been a much more robust banking system. Improved competition and better quality services have resulted in a reduction in the spread between deposit and loan rates. At the beginning of 1992, it has come down from 8 percent to 1 percent. Real interest rates have dropped from more than 40 percent to about 9 percent over the same period.