2.1 Introduction

The Indian financial system has evolved over time, keeping pace with the country's economic development and changing policy paradigms. Since independence, the overall policy paradigm assigned a critical role to the banking sector in financing the Indian development process. Initially, efforts involved bringing large commercial banks under government control, facilitating a massive expansion in banking since 1969. To supplement commercial banks, cooperative banks were activated and regional rural banks (RRBs) were established with the specific objective of promoting the financing of agriculture and rural economic activities. The post-reform period witnessed the emergence of a broad-based financial sector in India with the development of different segments of the financial markets and other financial institutions.

It is important to note that notwithstanding the development of other constituents of the Indian financial system during the post-reform period, commercial banks continued to be the dominant segment. Chapter 1 provided an introduction to banking in general. In this chapter, we will discuss in some detail the banking system in India.

Section 2.2 provides an overview of the Indian financial system, particularly with the objective of gaining a comparative perspective on commercial banks. This section introduces the key constituents of the Indian financial market such as the equity market, government securities market, corporate bond market, money market and forex market. Information about different financial institutions in India such as cooperative banks, RRBs, non-banking financial companies (NBFCs) and development finance institutions (DFIs) is also provided. Next, section 2.3 traces the evolution of commercial banking from a historical perspective.