Reforms in the Banking Sector India


Let us discuss about the Reforms in the Banking Sector India

The Finance minister Nirmala Sitharaman said that foreign portfolio investor (FPI) caps on corporate bonds would be raised from the existing 9% to 15% of outstanding stocks.

A clean, reliable and flexible financial sector is essential to achieving India’s vision of becoming a five-trillion economy over the next five years, Finance Minister Nirmala Sitharaman said Saturday.

"The financial system should begin to grow and shift from strength to strength," she said when discussing Parliament's 2020-21 Union Budget.

In order to access private capital, Mrs. Sitharaman suggested the selling of the IDBI Bank's government balance sheet to individual, retail and institutional investors via stock exchanges.

Backed by bank consolidation and the infusion of Rs 3.5 lakh Crore into public sector banks, the Minister of Finance said that governance reforms will be implemented to make them more competitive, transparent and professional, thus ensuring a robust banking system.

It will also encourage some public sector banks to approach the capital market to raise additional capital.

The Minister declared that the Deposit Insurance and Credit Guarantee Corporation (DICGC) had been authorized to raise the deposit insurance coverage to Rs 5 lakh per depositor from Rs 1 lakh in the previous.

She said there is a comprehensive system in place to track the safety of all scheduled and commercial banks, thus ensuring depositor money is secure.

Cooperative banks & non-banking finance companies (NBFCs) are also important components of the financial sector that need to be strengthened by improved governance. Amendments have been proposed to the Banking Regulation Act to increase professionalism, facilitate access to capital and improve oversight through the Reserve Bank of India (RBI).

Furthermore, Mrs. Sitharaman said that the limit for NBFCs to be eligible for debt recovery mechanisms under the SARFAESI Act 2002 should be reduced from existing asset size limits of Rs 500 Crore to Rs 100 Crore, or from existing Rs 1 Crore to Rs 50 lakh.

In order to achieve the aspirational growth rate, the Minister of Finance stressed the need to boost capital flows in the financial system through the following measures, taken in consultation with the RBI.

Ms. Sitharaman said that foreign portfolio investor (FPI) limits on corporate bonds would be raised from the existing 9%t to 15% of outstanding stocks.

Defined types of government securities should be completely available for both domestic and non-resident investors. A new debt-based exchange-traded fund (ETF) would be floated, consisting mostly of government securities.

The Finance Minister has stated that a new bill is being introduced to create frameworks for netting financial contracts. It would boost market trust and expand credit default swaps further.