Liberalization

There has been an outstanding change in the banking sector of India which started two decades ago.
However, the scenario was completely different before 1990. Banks were heavily nationalized in the
name of sustainable economic growth. In the initial days, banking sector was managed by private
companies with a flexible supervision by the British Government. Gradually, this sector came under
total control of Government; especially after India got its liberation from Britain. Government was more
keen to use banking funds in the development of society and other projects. And in meeting up these
needs, banks were involving heavy financial losses every year and Government was injecting money
to keep them alive in business. Consequently, banks became massive, ineffective and over staffed
government organization which was unable to meet up financial product demand. Banking system in
India was very close to collapse and Indian Government had to take initiatives to stop it from the
collapse. Initially, Government decided to stop controlling banks and instead, they wanted to leave the
banks to operate as per the market and customer demands. Simultaneously, Indian economic
structure was liberalized almost at the same time. Therefore, government initiatives coupled with
financial liberalization resulted a massive reform in the Indian banking sector. The first phase of
banking reform took place in India by the recommendations of a Governmental committee –
Narashimam Comiittee. However, the second reformation took place just about 7-8 years back. These
two phases of reformation resulted an efficient, market driven, customer focused banking sector in
India. It is expected that Indian banking sector would undergo one more reformation so that it can
compete with the banks in the global arena. Since, Indian economy is developing very fast, one more
phase transformation have become due for the sector. Currently, Indian banking needs to strengthen
their security which became mandatory for them. It is to be believed that one more transformation
phase would transform the Indian banking sector into a sector which would be able to compete with
the banks in the world arena.