Comparative analysis of banking sector reforms in India and China

Abstract

The Indian banking system is characterized by a large number of banks with mixed ownership. Post liberalization, capacity building, both in banks and the regulatory bodies pose a serious challenge, especially with regard to adoption of the advanced approaches and onslaught of regulatory norms. Chinese banking is grappling with challenge to transform financial institutions that have been disproportionately focused on SOE into an institution that serves the needs of growing non-state sectors. The second challenge is to improve financial discipline of enterprise behaviour, China has made good progress towards tightening bank lending standards and improving supervisory oversight in recent phase of reforms. The two countries are among the biggest economies in the word and are growing at enviable pace. For an economy to grow, healthy financial sector growth and presence of sound policy framework are two important criteria. Financial sector growth is an outcome of thriving capital market and the banking sector. For developing economies, role of banking sector becomes much more important. After accession to WTO and opening upof banking sector to competition to foreign banks, it is important to review the reform process and identify the causalities of the differences in reform process in both the countries. The report identifies the differences in reforms process and reasons for differences in the approach. It also ascertains the results using hypothesis testing. Based on the above analysis, it suggests recommendations for future course of action in reforms path.