Abstract
A banking sector performs three primary functions in an economy: the operation of the payment system, the mobilization of savings and the allocation of savings to investment projects. By allocating capital to the highest value use while limiting the risks and costs involved, the banking sector can positively influence the overall economy and is thus of broad macroeconomic importance.1
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References
See Bonin and Wachtel (1999), p. 113; Jaffe and Levonian (2001), p. 163; Rajan and Zingales (1998), p. 559; Wachtel (2001), p. 339.
See Bonin and Wachtel (1999), p. 113; King and Levine (1993), p. 719; Levine (1997), p. 691; Quispe-Agnoli and McQuerry (2001), p. 22; Wachtel (2001), pp. 357–359.
See Arun and Turner (2002c), p. 93; Denizer, Desai and Gueorguiev (1998), p. 2; Gerschenkron (1962), pp. 19–22; La Porta, Lopez de Silanes and Schleifer (2002), p. 266f.
See Demetriades and Luintel (1997), p. 311; Denizer, Desai and Gueorguiev (1998), p. 3; King and Levine (1993), p. 730; McKinnon (1991), p. 12; Shaw (1973), p. 3f.
McKinnon (1991), p. x.
See de Gregorio and Guidotti (1995), p. 433f.; Fry (1997), p. 768f.; King and Levine (1993), p. 734f.; Wachtel (2001), pp. 357–359.
See Acharya (2002), pp. 2–4; Budhwar (2001), p. 552; Forbes (2001), p. 5; Mohan (2004), p. 851; Singh (2003), p. 1f.
See Bhide, Prasad and Ghosh (2001), p. 7; Hanson (2001a), pp. 5–7; Shirai (2002a), p. 54.
For example Public Sector Banks still account for about 80% of bank assets, foreign banks are bared from taking majority ownership of privately owned Indian banks until April 2009 and the 40% target for credits to priority sectors has remained unchanged. See Bowers, Gibb and Wong (2003), p. 85; Gupta and Jayakar (2005), p. 60; Hanson (2001a), p. 7; Reserve Bank of India (2004b), p. 60.
See La Porta, Lopez de Silanes and Schleifer (2002), p. 26f. One of the main priorities of the United Progressive Alliance government elected in 2004 is achieving a sustainable growth rate of 7–8% over a period of 10–15 years to significantly reduce poverty. See Gupta (2005), p. 116; United Progressive Alliance (2004), p. 2.
Mohan (2004), p. 851.
See Csaba (1993), p. 100; Gibson and Tsakalotos (1994), p. 579; Wagener (1996), p. 2.
See Kloten (1991), p. 8f. The continuum problem is discussed by Pryor (1985), pp. 18–20.
Market failures can be caused by information asymmetries that can for example lead to credit rationing as shown by Stiglitz and Weiss (1981). See Aschinger (2001), pp. 66–68 for a general overview of market failures.
See Stiglitz (1996), p. 14f.; Stiglitz (2004), p. 21.
In addition, this will help to account for the growing evidence that the acceleration of India’s economic growth already began in the 1980s, and not in the 1990s as commonly assumed. See DeLong (2003), p. 195f.; Rodrik and Subramanian (2004), p. 6.
See Bell and Rosseau (2001), p. 154; Kirkpatrick (2005), p. 633; Ram (1999), p. 173.
See Csaba (1997), p. 8; Ghose (2000), p. 2; Murrell (1995), p. 175; Rodrik (2000), p. 86; Roland (2001), p. 32; Seliger (2002), p. 41; Stiglitz (1999), p. 30; Stiglitz (2004), p. 22.
See Ahrens (1994b), p. 18; Pickel (2002), p. 113; Schulders (1998) p. 3; Seliger (2002), p. 51; Wagener (1996), p. 5. There are several related approaches that can help explain transformation and its problems, such as public choice theory, new institutional economics, development economics, political-economy arguments and ordo-liberalism. These approaches will be referred to where appropriate.
See McKinnon (1973), pp. 1–3; Shaw (1973), p. 3f.
See for example Arestis and Demetriades (1997); Balassa (1990); King and Levine (1993); Levine (1997); Rajan and Zingales (1998).
Williamson and Mahar (1998), p. 2.
See Raje (2000), endnote 1.
See Quispe-Agnoli and McQuerry (2001), p. 3.
Johnston and Sundararajan (1999), p. 2f. (quoted from Quispe-Agnoli and McQuerry (2001), p. 3).
See Freixas and Rochet (1998), p. 1; Krahnen and Schmidt (1994), p. 35. Sometimes an argument is made that formal and informal sources of finance are functionally equivalent. This however is not the case since informal finance is generally insufficient to fund large-scale projects. See Huang (2006), p. 300.
See Platek (2002), p. 9.
See Berglof and Bolton (2002), p. 92; Indian Banks’ Association (2003), p. 9; Mohan (2006a), p. 17; McKinsey Global Institute (2006b), p. 27; Quispe-Agnoli and McQuerry (2001), p. 2; Werner (1999), p. 5. Commercial banks are the most important players in these countries since development financial institutions such as agricultural banks are also comparatively small. See Fry (1997), p. 754. The importance of securities markets increases when a country becomes more advanced economically. An important reason is that banks are generally supervised by the state and thus offer better protection for small investors when regulatory and contractual enforcement institutions in securities markets are weak. See Berglof and Bolton (2002), p. 92.
Author’s presentation based on Krahnen and Schmidt (1994), p. 7 and Platek (2002), p. 9.
See Fry (1997), p. 754; Quispe-Agnoli and McQuerry (2001), p. 1.
For an overview see Krahnen and Schmidt (1994), p. 7.
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(2008). Introduction. In: Banking Sector Liberalization in India. Contributions to Economics. Physica-Verlag HD. https://doi.org/10.1007/978-3-7908-1982-3_1
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