In last few years, India has emerged as the one of the most rapidly growing economies in the world. India has been categorized with nations like Brazil, Russia and China (BRIC Nations) who are going to be the prime drivers of world economy in next few decades. Since the time, India first opened its gates to foreign investment (FDI & FII), there has been a complete turnaround. Now the traditional Hindu rate of growth is a thing of past and clocking 8%-9% GDP growth rate is the common norm. India along with other Asian powerhouse China makes for the fastest growing nations in the entire world. Even if we take the case of ongoing global recession, India has managed to perform far better than other nations. Right from banking system to financial regularities, the country has thrived on discipline and out-performance. The booming Indian economy resulted in widespread growth and arrival of new industries. The most sparkling phenomenon is in form of financial market of India.
Financial services in India has taken a giant leap from the days of standing in banks queue for several hours for opening a saving account or trying to get some fixed deposits (FD) done. The financial services have increased manifold and now people have the choice to choose the one that most suitably fits the bill. There are several services like broking firms, investment services, financial consulting, evergreen national banks, numerous private banks, mutual funds, car and home loans, equity market and other banking services. Services are many and offered by blue chip names of the industry. Most of the companies in financial segment offer taxation services, project consultancy services and all the services of wide financial gamut.
Whether it’s taking a car loan or booking your favorite house, going for pension plan or getting your child insured, numerous attractive financial services are available at affordable costs. Personal banking services have acquired an altogether new meaning. Now customers have multiple choices to choose from. One can find all the financial services on the internet that are just a call away.
Reserve Bank of India and Money Supply
The Reserve Bank of India makes use of the interest rate, OMO (open market operations) , changes in the CRR (cash reserve ratio) of banks as well as placements of governmental debt as a means to control the money supply in India .
As part of the open market operations, the RBI either buys or disposes off government bonds in what is termed the secondary market. As the bonds are absorbed by the secondary market, it increases the yield of bonds, thereby injecting fresh cash into the market. When the RBI sells bonds, it is meant to absorb money out of the economic system.
Whenever there is a change in the cash reserve ratio , it can have an effect on the amount of free cash that banks use to lend. A reduction in the CRR can reduce the amount of money reserved for lending. This results in cuts to liquidity as a whole, causing interest rates to increase bringing down inflation and taking cash out of the markets.
The Reserve Bank of India follows the method of making primary deals in government bonds to directly intervene in markets. By purchasing such bonds directly from the government, at rates that are lower than market rates, the RBI limits the increase in interest rates.