Weaknesses of Indian Financial System
Friends, inward today’s Banking & Financial Awareness lesson series, nosotros shall acquire almost the weaknesses of Indian Financial System. After the introduction of planning, rapid industrialisation has taken place. It has inward plow led to the increment of the corporate sector in addition to the Government sector. In social club to run into the growing requirements of the Government in addition to the industries, many innovative fiscal instruments get got been introduced. Besides, at that topographic point has been a mushroom increment of fiscal intermediaries to run into the ever-growing fiscal requirements of dissimilar types of customers. Hence, the Indian fiscal organisation is to a greater extent than developed in addition to integrated today than what it was fifty years ago. Yet, it suffers from about weaknesses equally listed below :
- Lack of Co-ordination betwixt dissimilar Financial Institutions : There are a large number of fiscal intermediaries. Most of the vital fiscal institutions are owned past times the Government. At the same time, the Government is also the controlling authorization of these institutions. In these circumstances, the occupation of co-ordination arises. As at that topographic point is multiplicity of institutions inward the Indian fiscal system, at that topographic point is a lack of co-ordination inward the working of these institutions.
- Monopolistic Market Structures : In India, about fiscal institutions are in addition to hence large that they get got created a monopolistic marketplace position construction inward the fiscal system. For instance, a major component subdivision of life insurance concern is inward the hands of LIC. The UTI has to a greater extent than or less monopolised the usual fund industry. The weakness of this large construction is that it could Pb to inefficiency inward their working or mismanagement or lack of crusade inward mobilising savings of the populace in addition to and hence on. Ultimately, it would retard the evolution of the fiscal organisation of the province itself.
- Dominance of Development Banks inward Industrial Financing : The evolution banks flora the backbone of the Indian fiscal organisation occupying an of import house inward the working capital missive of the alphabet market. The industrial financing today inward Republic of Republic of India is largely through the fiscal institutions created past times the Government, both at the national in addition to regional levels. These evolution banks human activeness equally distributive agencies only, since, they derive most of their funds from their sponsors. As such, they neglect to mobilise the savings of the public. This would last a serious bottleneck which stands inward the agency of the increment of an efficient fiscal organisation inward the country. For industries abroad, institutional finance has been a effect of institutionalisation of personal savings through media similar banks, LIC, pension in addition to provident funds, unit of measurement trusts in addition to and hence on. But they play a less pregnant utilisation inward the Indian fiscal system, equally far equally industrial financing is concerned. However, inward recent times attempts are beingness made to enhance funds from the populace through the number of bonds, units, debentures in addition to and hence on. It volition buy the farm a long agency inward forging a link betwixt the normal channels of savings in addition to the distributing mechanism.
- Inactive in addition to Erratic Capital Market : The of import business office of whatsoever working capital missive of the alphabet marketplace position is to promote economical evolution through mobilisation of savings in addition to their distribution to productive ventures. As far equally industrial finance inward Republic of Republic of India is concerned, corporate customers are able to enhance their fiscal resources through evolution banks. So, they involve non buy the farm to the working capital missive of the alphabet market. Moreover, they don’t resort to working capital missive of the alphabet market, since it is real erratic in addition to inactive. Investors equally good prefer investments inward physical assets to investments inward fiscal assets. The weakness of the working capital missive of the alphabet marketplace position is a serious occupation inward our fiscal system.
- Imprudent Financial Practice : The ascendancy of evolution banks has developed imprudent fiscal exercise amid the corporate customers. The evolution banks supply most of the funds inward the aeroplane of term loans. So at that topographic point is a preponderance of debt inward the fiscal construction of corporate enterprises. This predominance of debt working capital missive of the alphabet has made the working capital missive of the alphabet construction of the borrowing concerns uneven in addition to lopsided. To brand matters worse, when corporate enterprises confront whatsoever fiscal crisis, these fiscal institutions permit a greater utilisation of debt than is warranted. It is against the traditional concept of a audio working capital missive of the alphabet structure.
However, inward recent times all efforts get got been taken to activate the working capital missive of the alphabet market. Integration is also taking house betwixt dissimilar fiscal institutions. For instance, the Unit Linked Insurance Schemes of the UTI are beingness offered to the populace inward collaboration alongside the LIC. Similarly, the refinance in addition to rediscounting facilities provided past times the IUBI aim at integration. Thus, the Indian fiscal organisation has buy the farm a developed one.