The financial sector consists of financial institutions like commercial banks, investment banks, stock exchange operations and foreign exchange market. The financial sector in India is regulated by the Reserve Bank of India. The RBI decides the amount of money that the banks can keep with themselves, fixes interest rates, nature of lending to various sectors, etc.
The major objective of financial sector reforms is to reduce the role of RBI from regulator to facilitator of financial sector. That means, the financial sector ma be allowed to take decisions on many matters independent of RBI.
The financial sector reform policies led to the establishment of private sector banks both Indian and foreign. Foreign investment limit in banks was raised to around 50%. The banks which fulfill certain conditions have been given freedom to set up new branches without the approval of the RBI. Foreign institutional investors (Fill) like merchant bankers, mutual funds and pension funds are now allowed lo invest in Indian financial markets.
