overall contribution of banking system to economy
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The role of financial sector in shaping fortunes for Indian economy has been even more critical, as India since independence lacked prowess of a resilient industrial sector. This prompted India to depend on other sectors for its sustenance. These other sectors mostly constituted of ‘financial service sector and ‘agricultural sector’.
India’s watershed decision to nationalize 14 commercial banks in 1969 validated how critical was ‘financial sector’. Its importance after economic reforms of 1992 has grown only manifolds to the extent that today it presently contributes to over 6% of India’s GDP. It is the dynamic growth of financial services sector during post reform age that has helped it in assuming such an important place in Indian economy. Unlike in past when financial services sector mainly constituted of banking sector, today financial sector has broaden its reach to include sectors like insurance services, non-banking financial services, co-operatives, pension funds, mutual funds, capital market etc.
Financial sector’s contribution comes across even more strong when we look at sheer number of employment and tax revenue it generates. Especially employment generated by banking and insurance sector every year runs in millions. Equally revenue generation through tax and dividend collection by the government surpasses billions of rupees every year. While revenue and employment generation are two very important contributions, successfully maintaining healthy credit line to industrial sector as well as to overall economy is another important contribution of financial sector. Banks and non banks in India have been discharging credit in billions to big, medium/small industries, entrepreneurs etc every financial year.
India’s watershed decision to nationalize 14 commercial banks in 1969 validated how critical was ‘financial sector’. Its importance after economic reforms of 1992 has grown only manifolds to the extent that today it presently contributes to over 6% of India’s GDP. It is the dynamic growth of financial services sector during post reform age that has helped it in assuming such an important place in Indian economy. Unlike in past when financial services sector mainly constituted of banking sector, today financial sector has broaden its reach to include sectors like insurance services, non-banking financial services, co-operatives, pension funds, mutual funds, capital market etc.
Financial sector’s contribution comes across even more strong when we look at sheer number of employment and tax revenue it generates. Especially employment generated by banking and insurance sector every year runs in millions. Equally revenue generation through tax and dividend collection by the government surpasses billions of rupees every year. While revenue and employment generation are two very important contributions, successfully maintaining healthy credit line to industrial sector as well as to overall economy is another important contribution of financial sector. Banks and non banks in India have been discharging credit in billions to big, medium/small industries, entrepreneurs etc every financial year.
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there is a 2 type of market.
1. money market which is controlled by RBI ( reserve Bank of India).
2. capital market which is controlled by SEBI (security exchange board of India).
for a short term up to 1 year it is called money market and for a long term more than 1 year it is called capital market.
there is some instrument by which RBI controls the money market.
1. (LAF)liquidity adjustment facility
repo rate- it is a rate at which RBI gives loan to banks.
reverse reo rate- it is a rate at which RBI gives interest to banks on it's deposit.
if repo rate increases than flow of money in the market decreases vice-versa..
.
if reverse repo rate increases than flow of money in the market increases vice- versa.
2. SLR( statuory liquidity ratio)- it is an amount which is kept by Bank itself.
3.CRR( cash reserve ratio)- it is an amount which is kept by banks to RBI.
1. money market which is controlled by RBI ( reserve Bank of India).
2. capital market which is controlled by SEBI (security exchange board of India).
for a short term up to 1 year it is called money market and for a long term more than 1 year it is called capital market.
there is some instrument by which RBI controls the money market.
1. (LAF)liquidity adjustment facility
repo rate- it is a rate at which RBI gives loan to banks.
reverse reo rate- it is a rate at which RBI gives interest to banks on it's deposit.
if repo rate increases than flow of money in the market decreases vice-versa..
.
if reverse repo rate increases than flow of money in the market increases vice- versa.
2. SLR( statuory liquidity ratio)- it is an amount which is kept by Bank itself.
3.CRR( cash reserve ratio)- it is an amount which is kept by banks to RBI.
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