Article
Suyash Rai, Anirudh Burman
{
"authors": [
"Suyash Rai"
],
"type": "other",
"centerAffiliationAll": "",
"centers": [
"Carnegie Endowment for International Peace",
"Carnegie India"
],
"collections": [],
"englishNewsletterAll": "",
"nonEnglishNewsletterAll": "",
"primaryCenter": "Carnegie India",
"programAffiliation": "",
"programs": [],
"projects": [
"Political Economy"
],
"regions": [
"India"
],
"topics": [
"Domestic Politics",
"Economy"
]
}
Source: Getty
Other
Regulation in India: Banking
The financial system plays an important role in mobilizing savings, allocating capital in the economy, monitoring corporations, providing liquidity, helping individuals and firms manage risks, facilitating payments, and other economic functions.
By Suyash Rai
Published on Apr 4, 2019
Source: Hart Publishing
Banking is not only basically 19th-century technology, but it is disaster-prone technology.1
—Merton Miller
The financial system plays an important role in mobilising savings, allocating capital in the economy, monitoring corporations, providing liquidity, helping individuals and firms manage risks, facilitating payments and other economic functions. There is significant evidence of the positive impact of financial development on the economy.2 Financial systems of different countries differ in terms of their institutional structure, with some being largely market-based and others more bank-based.3
India’s financial system is largely bank-based. As of 31 March 2016, about 45.5 per cent of borrowing of non-financial firms was from banks (see Figure 6.1). For private non-financial firms, the share of bank loans was 51.6 per cent, while bonds and foreign borrowing added up to less than a quarter of borrowing. As of 31 March 2016, the ratio of scheduled commercial banks’ deposits to gross domestic product (GDP) was 67.8 per cent, up from 41.4 per cent at 31 March 1996. The total deposits with banks were Rs 103.6 trillion, while the total assets under management with mutual funds and the pension system were only Rs 13.5 trillion. Given the salience of banks in the economy, regulation of banking is a crucial function of the Indian state.
This book chapter was originally published by Hart Publishing.
NOTES
1 Merton Miller, ‘Financial Markets and Economic Growth’ (2003)11(3) Journal of Applied Corporate Finance 8, 15.
2 See generally Raghuram G Rajan and Luigi Zingales, ‘Financial Dependence and Growth’ (1998)88(3) American Economic Review 559, 586.
3 Asli Demirgüç-Kunt and Ross Levine, ‘Bank-Based and Market-Based Financial Systems: Cross-country Comparisons’, World Bank, 1999, available at http://documents.worldbank.org/curated/en/259341468739463577/pdf/multi-page.pdf.
About the Author
Suyash Rai
Former Fellow, Carnegie India
Suyash Rai was a fellow at Carnegie India. His research focuses on the political economy of economic reforms, and the performance of public institutions in India.
- The Best of Ideas and Institutions, 2023
- Global Technology Summit 2022 Action PointsOther
- +4
Shruti Sharma, Suyash Rai, Konark Bhandari, …
Recent Work
Carnegie does not take institutional positions on public policy issues; the views represented herein are those of the author(s) and do not necessarily reflect the views of Carnegie, its staff, or its trustees.
More Work from Carnegie Endowment for International Peace
- India–Africa Strategic Partnership: Challenges, Potential, and Possible PathwaysArticle
A partnership between India, a country of subcontinental size, and Africa, a continent of fifty-four countries, may seem asymmetric until one notes that both are home to nearly the same number of people—1.4 billion. This essay spells out the existing challenges to the partnership, its optimal potential, and the possible pathways to realize it over the next quarter-century.
Rajiv Bhatia
- Delimitation After Defeat: India’s Unfinished Debate Over RepresentationPaper
The battle over representation and regional power has been delayed—not resolved—and will shape the future of India’s federal balance.
Louise Tillin, Milan Vaishnav, Andy Robaina
- In Russia, Private Companies Have Been Left to Pick Up the Tab for Ukrainian Drone AttacksCommentary
The cost of air defense has become an unregistered tax on revenue for businesses. While military rents are consolidated in the federal budget, the costs of defense are being spread across the balance sheets of companies and regional governments.
Alexandra Prokopenko
- California’s Global Trade Cities: Driving Local and National OutcomesPaper
Cities across the United States facilitate investment in American communities. Yet, because global attention remains focused on U.S. trade policy, their distinctive and bold local approaches to international trade and investment promotion are often underappreciated.
Wyatt Frank, Marissa Jordan
- The Unresolved Challenges in U.S.–India Semiconductor CooperationCommentary
The U.S.–India semiconductor cooperation story is well-stocked with top-level strategic intent. What remains unresolved, however, are some underlying challenges that will determine whether the cooperation actually functions. Three such friction points stand out.
Shruti Mittal
