Financial Development And Stability

China's financial reform and development is presently at a turning point where it faces many challenges and also some important choices. China's finance needs to transform conceptions, especially those on how to learn, imitate, use for reference and naturalize. In order to develop new theory and methodology, China should pay much attention to the especial local development mode and successful experience from the developing countries, such as those from Asia, East Europe and South America. China should not only focus on the successful modes from developed countries. In this sense, India might be a good model that we should study from. The reasons are as followed. First, India's finance has a similar background to that of China. Second, India's financial reform and development has achieved a great success. Finally, China and India are both countries with a great population and resource. In all, it is significantly meaningful both in theory and practice to deeply explore the historical process and practice experience of India's financial development and stability.India is the largest country in South Asia and plays an important role on the stage of global economy and politics. Before its political independence in 1947, India established a large financial system with a healthy banking industry, diversified financial institutes and financial instruments. With over 10 years of development after its independence, especially after the bank nationalization of 1969, India's financial system witnessed a rapid development and ranked among the top 4 developing countries. Since the 1990s, India has accumulated rich experience in the financial development and stability. Firstly we focus on its banking reform. Before the reform of 1991, India's banks are in the state of suppressed development with features such as interest rate control, zero real interest rate in a long run, a high reserve ratio, and over 50% funds out of the control of banks, and serious monopolization in the credit market. India's banking reform mainly included three measures as followed. First, the market mechanism pays a full role in the credit market and deregulation such as decreasing reserve ratio and gradually loosing the control of interest rate is practiced. Second, a reform of property right increased the ratio of private property right in state-owned banks. Third, the reconstruction of market structure is reinforced, such as the entry of foreign banks into the credit market and the encouragement of the development of domestic private banks. Through these reforming measures, the number of financial institutes increases doubly, and the market structure is improved and the credit market becomes more and more competitive, and the assets share of state-owned banks among all commercial banks assets is gradually decreasing. Meanwhile the banking industry witnessed a high efficiency, a high capital adequacy, a low level of non-performing assets, an improved productivity, a low operation cost and a decreasing NIM. Therefore, India's reform of the banking industry experienced a significant success.Secondly we focus on its financial market. Since 1991, India's stock market has experienced a series of reforms, mainly including deregulation in the primary market, and expansion of the market basis, increase of the market liquidity, reinforcement of risk management and maintenance of the market stability in the secondary market. Meanwhile, India further opened the stock market, reinforced its supervision, and improved the trading instruments, consummated the facilities and improved the trading efficiency. Since the financial reform, India's stock market experienced a rapid development, with increasing listed companies, and with leaping market values, trading volumes, stock market liquidity and mobilization capacity of resources, a mass of investors and expansion of market organizations and foreign strategy investors with a reinforcing role. However, India also experienced a few market scandals, the liquidity lack of a large number of stocks, the insufficiency of market depth, and a low rate of stock settlements. India also launched a series of reforms in the bond market. Before this reform, the bond market is one of approaches to monetarize the financial deficit. The bond market had an interest rate under a strict control, a small scale of bonds and trading volumes. The efficiency of the bond market is improved right after the reform. Besides, since 1991 India gained a success in the reform of corporate bonds, market liquidity, supervision and facilities.Through the reform of banking institutes and financial markets, India's financial structure has experienced a significant change. This change embodied in the major three aspects of macro-structure, industrial structure and micro-structure. From the angle of macrostructure, the increase of financial liberty, the financial relative rate and the monetarization ratio, and the financial development embodying obvious features of phase development. Also saving ratio and investing ratio changed greatly. From the angle of industrial structure, India's financial development featured in a gradually deepening monetarization, a rapid but unstable stock market, a banking industry with a lagged development and a bond market with a lagged development and an irrational structure, and other financial institutes with a certain degree of development. Finally from the angle of microstructure, the assets alternatives for Indian households were diversified. The ratio of bank deposits in the total financial assets was decreasing. The ratio of insurance funds was increasing. And the financing structure of Indian enterprises was mainly apt to internal financing, and otherwise in case of external financing, it was apt to bond finance with a larger ratio of private bonds. And the government finance is much more operated on a market basis.India's financial reform is launched under the background of the financial development and financial stability. During the Asian Financial Crisis in the late of the 20th century, India's financial development featured as the financial deregulation and the full market competition in the financial industry. However, the Asian Financial Crisis is an alarm for India's financial reform, which urges India to adjust its reforming strategy and to regard financial stability as the import standard to distinguish the success and the failure of financial reforms. As for the framework of financial supervision, India amended the relative laws, perfected the organization system, and improved its ways of supervision by inducing non-spot supervision besides spot supervision, and united and coordinated supervision, and timely stipulated supervision measures for the financial multi-functional business. Meanwhile, India also further consummated the Crisis Management System and reinforced the reform of deposit insurance system, and stipulated the PCA act to govern the problem banks and also stipulated the relative standards of risk exposure for financial institutes. Besides, India reinforced the supervision on the bank capital adequacy rate and bank investments, and reinforced the market restraints on banks so as to improve the stability of banking industry.What is the biggest enlightenment from India's experience to us? The dissertation doesn't aim at any concrete suggestions which might be drew from the research into India's practice, because any specific reform measures and system transitions are the products of India's especial conditions and backgrounds. However, the dissertation implies that the biggest enlightenment to China's financial reform and financial development is India's assimilation of foreign culture into its national feature and its reforming mode of localization. China's economic and financial development is on the way of internationalization and localization, but full of frustrations. In the last chapter, the dissertation advocates that China's finance is at present on a critical stage of development, and urgently needs transforming conceptions and brave academic innovations through the retrospect into China's near 30 years of financial reforming history and academic advances.To sum up, the dissertation demonstrates the major processes and features of India's financial development and financial stability, and proves the success of India's financial reform through the literature review of financial development and financial stability and through a positive research method. The dissertation is a basic research advance with complete materials, systematic studies and timely contents to better understand India's situation of financial development both for academic and for professional of China's finance.