The reform agenda included, among others, financial liberalization and deregulation measures which were: privatization of NCBs, removal of restrictions on opening‐up of private banks, phasing out of subsidized and mandatory credit schemes, removal of caps on deposit and lending rates of banks, abolishment of the system of credit ceiling, and switching towards a market based approach of credit distribution, etc.
Banking is plagued by inherent instability. The banking sector functions as a closely inter-linked system, which is prone to contagion risks through the payment system and the interbank markets. Central banks, as issuer of money, need, like any other sound managed financial institution, to monitor the quality of their counterparts.