Prior to the inception of financial sector reforms in 1991, the Indian financial system can best be characterized as highly regulated and financially repressed. The prevalence of high reserve requirements, interest rate controls and allocation of financial resources to predesignated sectors adversely affected banks’ resource mobilization and allocation. 18. The period 1992–97 laid the foundations for reforms in the banking system.
The reforms comprised of five major planks: cautious and proper sequencing, mutually reinforcing measures, complementarities between banking reforms and other associated policies (e.g., monetary, external, etc. ), developing financial infrastructure and nurturing and developing financial markets.