PDF: 2962 pages, 5.2 MB - Bay Area Council Economic Institute

Global Reach
In 1993, as an alternative to the Bombay Stock Exchange, leading financial institutions in India
promoted the launch of the National Stock Exchange (NSE) to introduce electronic trading,
clearing, and settlement nationwide. NSE launched exchange-traded derivatives in 1996, followed
by exchange-traded funds (ETFs) and online trading in 2000. Mutual funds trading began
in India in 1996.
Over time, SEBI has established a regulatory framework for corporate governance and transparency,
including reporting, share buyback, and employee stock option provisions. It has also
established rules for options and futures trading, a system of rolling settlements, and a code of
conduct for credit-rating agencies. Borrowing, lending and short-selling of shares by foreign
portfolio investors was approved in January 2008, with similar approval for local institutional
investors to follow.
Restructuring India’s Banking System
India has a multi-tiered banking industry comprised of:
• the 20 PSBs, plus the government-owned State Bank of India (SBI) and its 7 associate
regional banks;
• 20 private banks, including 11 “old private banks” dating back as far as 1916, with most
of the rest formed in 1994 following liberalization;
• a network of 96 regional rural banks (RRBs) that mainly take local and regional deposits
and make small loans to farmers, cottage industries, and entrepreneurs;
• a system of nearly 2,100 urban cooperative banks (UCBs) with 80% in 5 states, plus
nearly 400 district and state cooperative banks, and more than 92,000 agricultural credit
societies; and
• 30 foreign banks with 279 branch offices—including four U.S. banks with a total of 52
branches—which operate under a two-phase “road map” toward India’s compliance
with rules for World Trade Organization membership. (India has now delayed an industry
review process, originally scheduled for completion in 2009, during which it would
consider extending national treatment to foreign banks, removing all foreign ownership
limits, and permitting foreign mergers and acquisitions involving private banks.)
According to a 2007 Reserve Bank of India (RBI) report, the nationalized public sector banks
(PSBs) hold a 49% market share of the banking sector, with SBI and its associates holding another
24%. New private banks which offer better technology, services, and capital reserves have
seen their share increase from 9% to 16% since 2002, while the old private banks have seen their
combined share fall from 7% to 5% during that time.
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