2. Financial Sector has been
incrementally deregulated and
exposed to international financial
markets in the last 18 years;
Consequently, elements of the
Indian financial sector are close to
international standards.

3. Global financial market conditions
are favorable
Are we seizing the opportunity for
urgent reforms and greater
integration?
How do we decide what is an optimal
rate to integrate with global financial
markets?

4.  Increase competition and thereby enhance the
efficiency of financial intermediation and promote
overall savings;
 Widen and deepen the reach of the formal financial
sector;
 Ensure that the country’s savings are utilized most
productively; and
 Manage the risks stemming from disturbances in
global markets to insulate the financial sector and
the Indian economy.
OBJECTIVES

5. • There should be an adequate number of buyers and
sellers such that all market participants are price-
takers
• The primary market (for all issuance) should have a
large number of participants
• Valuations in the secondary market should be
transparent and liquid enough to allow easy exit
• The bid-ask spreads in the secondary markets should
be narrow.
CRITERIA FOR COMPETITIVE MARKETS

6. The depth of the financial sector is
relatively low
About two-thirds of private savings
are mobilized by the financial sector.
Productivity of investments should be
given greater weightage in allocation
of credit.

7. Table 1
Stock of Financial Assets as % of GDP
(2008)
CountryCountry FinancialFinancial
AssetsAssets
IndiaIndia 160160
JapanJapan 420420
MalaysiaMalaysia 400400
South KoreaSouth Korea 235235
ChinaChina 220220

8. • A gradualist approach to “Fuller Capital
Account Convertibility” is in order. The
risks stemming from potential demand for
investments in foreign assets (including
real-estate) are not quantifiable and may be
unmanageable in times of domestic-
international stress

9.  Domestic interest rates are not
adequately market determined i.e.
there is need for further
deregulation of interest rates

10. CountrCountr
yy
Regulators of Financial ServicesRegulators of Financial Services
UKUK Financial Service Authority (FSA)Financial Service Authority (FSA)
JapanJapan Financial Service Agency (FSA)Financial Service Agency (FSA)
GermaGerma
nyny
The Federal Financial Supervisory Authority (BaFin)The Federal Financial Supervisory Authority (BaFin)
IndiaIndia Banking – RBIBanking – RBI
Capital Markets – SEBICapital Markets – SEBI
Insurance – IRDAInsurance – IRDA
Pension – PFRDAPension – PFRDA
ChinaChina Banking – China Banking Regulatory CommissionBanking – China Banking Regulatory Commission
(CBRC)(CBRC)
Capital Markets – State Council SecuritiesCapital Markets – State Council Securities
Commission (SCSC)Commission (SCSC)
Insurance – The China Insurance RegulatoryInsurance – The China Insurance Regulatory
Commission (CIR)Commission (CIR)
USAUSA Banking – Federal Reserve BankBanking – Federal Reserve Bank

11. The banking sector has reformed
considerably since the early 1990s
but is excessively dominated by the
public sector which receives 78% of
the deposits and makes about 73%
of the loans

12. DepositsDeposits LoansLoans
MarMar
20002000
MarMar
20092009
MarMar
20002000
MarMar
20092009
PubliPubli
cc
SectoSecto
rr
81.981.9 7878 79.379.3 73.273.2
NewNew
PrivatPrivat
ee
5.25.2 10.910.9 5.05.0 13.813.8
OldOld 7.47.4 6.46.4 7.67.6 6.26.2

13. CountryCountry Lending as percent ofLending as percent of
DepositsDeposits
ChinaChina 130130
UKUK 114114
MalaysiaMalaysia 101101
USAUSA 9292
IndiaIndia 6161

14. Efficiency in the banking sector lags
international comparators in terms of
intermediation costs
Just two domestic private banks
have entered this sector in the last
ten years

15. A coordinated effort is needed to
hasten consolidation among and
international listings of public sector
banks and entry of new private
sector banks
Separate regulator for banking
We should not mix up insolvency
with illiquidity

16.  Indian equity and related exchange
traded derivatives markets and to some
extent the mutual fund industry compare
well with international markets
 The over the counter (OTC) interest rate
and currency swap markets cannot grow
without better market determination of
domestic interest rates and further
capital account convertibility (FCAC)

17.  The corporate debt market is miniscule
and needs a series of reforms including
stamp duty rationalization, repos in
corporate bonds, settlement and clearing
of corporate bonds through the same
clearing system as government
securities, introduction of credit
derivatives, lifting of limits for FII
purchases of corporate bonds

18. Exchange traded interest rate
derivatives should be encouraged
since this will improve the market
determination of domestic interest
rates and help the corporate bond
market to grow
Exchange traded currency
derivatives can wait for next steps
towards FCAC

19. Commodity derivatives markets
should be regulated by SEBI
The Companies Act needs to be
amended and SEBI strengthened to
take over the regulatory
responsibilities under this Act

20. The private equity market should be
courted and exit valuation
methodologies made transparent and
predictable.
The asset backed securities market
will not develop without considerable
preparatory work particularly on the
legal issues involved. Hence, special
efforts need to be directed to this end.

21.  In cross-country terms, the Indian
insurance industry is small in depth and
coverage and there is tremendous
potential for growth. Premiums should
be deregulated, the requirement to hold
at least 50% of assets in government
securities should be gradually relaxed as
also the ceiling of 26% ceiling for foreign
ownership

22.  The pension sector is almost entirely in the public
sector and covers only about 16% of the work-force.
Progress is hindered by a multiplicity of Acts,
administered by several GoI Ministries, which have
subdivided the sector. The pay-as-you-go government
administered pension systems should be gradually
replaced by defined contribution schemes in which
pension assets are invested in securities, both debt
and equity. The pension sector needs to be
comprehensively reviewed, at a GoI wide level, in the
light of the potential for it to help boost the equity and
bond markets and thereby the entire financial sector

23. The complex web of legislation that
applies to the financial sector needs
to be simplified. Further, there are
obvious anomalies in certain Acts
e.g. those which provide for RBI
representation on the boards of
public sector banks such as State
Bank of India (SBI), National
Housing Bank (NHB).

24. IndiaIndia 33
SouthSouth
KoreaKorea
174174
BrazilBrazil 7171
ChinaChina 6161
ThailandThailand 5454
MexicoMexico 4444

25. CountryCountry MarketMarket
CapitalisatiCapitalisati
onon
ValueValue
AddedAdded
ListedListed
DomesticDomestic
Cos.Cos.
IndiaIndia 7171 5757 47634763
USAUSA 136136 172172 51435143
JapanJapan 104104 109109 32793279
UKUK 139139 189189 27592759
GermaGerma
nyny
4444 6363 648648
ChinaChina 3535 2626 13871387
*Figures in percent

26. Country/Country/
RegionRegion
OTCOTC
DerivativesDerivatives
MarketsMarkets
Average dailyAverage daily
turnover*turnover*
Exchange-Exchange-
tradedtraded
DerivativesDerivatives
MarketsMarkets
AnnualAnnual
turnover**turnover**
IndiaIndia
(2008)(2008)
Not availableNot available 11
USAUSA
(2008)(2008)
355355 819819
EUEU
(2008)(2008)
10011001 487487
*US$ billion; ** US$ trillion

27. CountryCountry Mutual FundMutual Fund
AssetsAssets
% of% of
GDPGDP
IndiaIndia 6464 88
USAUSA 8,9058,905 7171
FranceFrance 1,3631,363 6565
SwitzerlaSwitzerla
ndnd
117117 3232
UKUK 547547 2525
NetherlaNetherla
ndsnds
9494 1515
GermanyGermany 297297 1111
(US$ billion end 2008)

28. YearYear EquityEquity
IssuesIssues
Rs.Rs.
CroresCrores
GOIGOI
SecuritieSecuritie
ss
Rs.Rs.
CroresCrores
Debt IssuesDebt Issues
PubliclyPublicly
placedplaced
PrivatelyPrivately
placedplaced
2004-052004-05 28,20028,200
(0.9)(0.9)
1,06,501,06,50
1 (3.4)1 (3.4)
4,0944,094 55,40855,408
(1.8)(1.8)
2005-062005-06 36,53336,533
(1.0)(1.0)
1,60,011,60,01
8 (4.5)8 (4.5)
---- 81,84681,846
(2.3)(2.3)
2006-072006-07
(Apr-(Apr-
Sep)Sep)
8,2058,205 BEBE
1,81,871,81,87
55
---- 47,94547,945
Figures in () are percent of GDP

29. CountryCountry % of% of
GDPGDP
IndiaIndia 22
USAUSA 145145
GermanyGermany 116116
UKUK 8383
MalaysiaMalaysia 7373
ThailandThailand 2222
SouthSouth
AfricaAfrica
1717
(2008)

30. IndiaIndia 33
USAUSA 5151
UKUK 5454
SouthSouth
KoreaKorea
1313
ThailandThailand 99
MalaysiaMalaysia 2323
GermanyGermany 4848
2008
(Percent of GDP)

31. CountryCountry OTC CommodityOTC Commodity
DerivativesDerivatives
Trading (AverageTrading (Average
daily turnoverdaily turnover
2007 – US$2007 – US$
billion)billion)
Exchange TradedExchange Traded
CommodityCommodity
DerivativesDerivatives
(Annual turnover(Annual turnover
2008 –2008 –
US$ trillion)US$ trillion)
IndiaIndia ---- 0.330.33
USAUSA 4.64.6 8282
EUEU 1313 4949

32. CountryCountry 20062006 20072007 20082008
TotaTota
ll
LifeLife NonNon
-life-life
TotaTota
ll
LifeLife NonNon
-life-life
TotaTota
ll
LifeLife NonNon
-life-life
USAUSA 9.589.58 4.64.6 4.94.9
88
9.619.61 4.254.25 5.155.15 9.179.17 4.124.12 5.055.05
UKUK 14.714.7
55
10.110.1
99
4.54.5
66
13.313.3
77
8.628.62 4.754.75 12.612.6 8.928.92 3.683.68
GermanyGermany 6.766.76 3.063.06 3.73.7 6.996.99 3.173.17 3.823.82 6.976.97 3.113.11 3.863.86
JapanJapan 10.810.8
66
8.648.64 2.22.2
22
10.810.8
11
8.618.61 2.22.2 9.529.52 6.756.75 2.772.77
IndiaIndia 3.263.26 2.592.59 0.60.6
77
2.882.88 2.262.26 0.620.62 3.173.17 2.532.53 0.650.65
ChinaChina 2.982.98 2.032.03 0.90.9
66
3.333.33 2.32.3 1.031.03 3.063.06 2.212.21 1.051.05

33. CountryCountry 20072007 20082008
TotalTotal LifeLife Non-Non-
lifelife
TotalTotal LifeLife Non-Non-
lifelife
USAUSA 3637.3637.
77
1657.1657.
55
1980.21980.2 3755.3755.
11
1692.1692.
55
2062.62062.6
UKUK 4058.4058.
55
2617.2617.
11
1441.41441.4 4508.4508.
44
3190.3190.
44
1318.01318.0
GermanyGermany 2051.2051.
22
930.4930.4 1120.81120.8 2286.2286.
66
1021.1021.
33
1265.31265.3
JapanJapan 3770.3770.
99
3002.3002.
99
768768 3874.3874.
88
30443044 830.8830.8
IndiaIndia 16.416.4 12.912.9 3.53.5 19.719.7 15.715.7 4.04.0
ChinaChina 36.336.3 25.125.1 12.212.2 40.240.2 27.327.3 12.912.9
WorldWorld 469.6469.6 267.1267.1 202.5202.5 511.5511.5 291.5291.5 220220

34. CountryCountry InsuranceInsurance
AssetsAssets
% of% of
GDPGDP
IndiaIndia 2222 33
USAUSA 5,4655,465 4444
JapanJapan 2,2642,264 5050
UKUK 1,9071,907 8787
FranceFrance 1,5271,527 7272
GermanyGermany 1,3701,370 4949
NetherlanNetherlan
dsds
385385 6161
SwitzerlanSwitzerlan 337337 9191

35. CountryCountry PensionPension
FundsFunds
% of% of
GDPGDP
IndiaIndia 60*60* 88
SwitzerlanSwitzerlan
dd
469469 127127
NetherlanNetherlan
dsds
693693 110110
USAUSA 12,11912,119 9797
JapanJapan 3,4193,419 7575
UKUK 1,6071,607 7373
FranceFrance 165165 88
* Estimate of EPFO, EPS and PF Funds.

36. CountryCountry DomesticDomestic
EquityEquity
InternationalInternational
EquityEquity
DomesticDomestic
BondsBonds
InternationalInternational
BondsBonds
CashCash OthersOthers
JapaJapa
nn
2929 1616 2626 1111 1111 77
UKUK 3939 2828 2323 11 22 77
USAUSA 4747 1313 3333 11 11 55

37. 20082008 205205
00
WorldWorld 1111 2525
G10G10 2323 4242
ChinaChina 1111 3737
LatinLatin
AmericaAmerica
99 2929
IndiaIndia 88 2222