Financial Intermediaries and Corporate Finance in India: Some Implications of Financial Sector Reforms

Abstract

The role of financial intermediation in facilitating capital formation of a country is well recognized. The control over intermediaries had lead to the view of "financial repression" which consequently affects the capital formation. This in turn underlined a case for financial liberalization which is being addressed to in India in recent years. Some steps towards reforms were undertaken in line with the Narasimham Committee recommendation. The financial sector reforms follow liberalization in real sector of the economy which intends to give a greater role to Private Corporate Sector. This paper examines the new role of financial intermediaries in financing the Private Corporate Sector. In what follows, section I discusses the importance of financial system in an economy; section II examines the financial development in Indian economy along with the role of financial intermediaries in the financial intermediation process; and, section III analyses the link between financial intermediaries and Private Corporate Sector in India, more specifically in the early 90s.