ABSTRACT
An efficient financial system contributes to positive economic development. A financial system in its role as an intermediary performs the important role of channelling savings to investment. When savings are allocated to projects that are profitable, they will result in generating high return investments. Empirical evidence world-wide confirms that countries with well developed financial systems tend to have better economic performance, while countries with weak financial systems are associated with low economic performance. At the time the Imperial Bank was nationalised, there were complaints that the privately owned Indian commercial banks were granting medium and large scale loans to big businesses to the virtual exclusion of the small scale borrowers, like farmers and small industrialists. Despite the wide expansion of banking facilities in terms of geographical areas, the overall performance of the nationalised banks was poor. The interest rate regime in India has undergone a rapid transformation.
