Financial Sector Reforms: 1992-93 to 1995-96
- Bank norms liberalized and banks have been given the freedom to decide
levels of holding of individual items of inventories and receivables.
- Ceiling on term loans raised to Rs 10,000 million for projects involving
expansion/modernization of power generation capacities.
- Banks are allowed to set their own interest rate on post-shipment export
credit (in Rupees) for over 90 days.
- Deregulation of interest rates on loans over Rs 200,000 against term
deposits and on domestic deposits with maturity periods over two years.
- Banks have been freed to fix their own foreign exchange open position
limit subject to RBI approval.
- Guidelines issued to banks to ensure qualitative improvement in their
- Loan system introduced for delivery of bank credit. Banks required
to bifurcate the maximum permissible bank finance of Rs 200 million and
above into loan component of 40% (short term working capital loan) and
cash credit component of 60%, by Dec 31, 1995.
Decontrol and Competition
Decades of non-commercial orientation, direct lending, loan waivers
and increasing non-performing assets had initially made banks difficult
to adjust to a market environment having strict prudential norms. However,
the emerging results suggest that banks are beginning to adapt to the competitive
environment and face the challenge. Many steps were taken in 1995-96 to
reduce controls and remove operational constraints in the banking system.
These include interest rate decontrol, liberalization and selective removal
of Cash Reserve Ratio (CRR) stipulation, freedom to fix foreign exchange
open position limit and enhanced refinance facilities against government
and other approved securities.