Economic Survey 2014- 15 states that liquidity conditions (money supply) have remained broadly balanced during 2014-2015 except for some temporary tight conditions due to delayed government expenditure. Steps taken by the Reserve Bank of India (RBI) played a positive role in managing the liquidity conditions.

• Till January 2015, RBI had kept the policy rates unchanged. As inflationary conditions eased, RBI softened the monetary policy by cutting the Repo rates by 25 basis points in January 2015 (from 8% to 7.75%).
• The Reserve Bank of India (RBI) also adopted new Consumer Price Index (combined) as the measure for nominal anchor (Headline CPI) for policy communication.

Economic Survey 2014- 15 also mentions about the many reform initiatives undertaken in the banking sector during 2014- 2015. These include

1.       Banks being allowed to raise capital from the market to meet capital adequacy norms by diluting the government’s stake up to 52 per cent.

2.      Pradhan Mantri Jan Dhan Yojana launched to provide universal access to banking facilities with at least one basic banking account for every household.

3.      In April 2014, two applicants have been granted ‘in principle’ approval to set-up new banks in the private sector within 18 months.

4.      RBI released guidelines and invited applications for setting up payments banks and local area banks.

According to Economic Survey, FY 2014- 2015 saw some stress on the asset quality of the Scheduled Commercial Banks as there was an increase in gross NPA (Non Performing Advances) to the total gross advances. NPA increased from 4.1 %( March 2014) to 4.5 %( September 2014). As on June 2014 , five subsectors, viz. Infrastructure, Textiles, Iron & Steel, Mining and aviation hold 54% of total stressed advances of Public Sector Banks.

Actions taken by RBI to deal with NPAs

1.      Issued guidelines, prompting banks to act as soon as a sign of stress is noticed in borrower’s actions and not to wait for it to become a NPA.

2.      Tightened norms to Asset Reconstruction Companies, increasing the minimum investment in security receipts to 15% from 5%.

3.      Issued guidelines to bring flexibility in project loans to infrastructure and core industry projects.

2014- 2015 also saw a decline in the growth of bank credit due to high accretion of NRI deposits and also due to low deposit mobilization

Economic Survey points out that insurance penetration in India has grown from 2.3% in 2000 t0 3.9% in 2013. This insurance penetration level compares well with the emerging market economies. The sector registered a growth of 9.4% during 2013- 14 with Life Insurance Corporation of India registering 13.5 % growth.

Reform initiatives in Insurance sector during 2014- 2015      

1.      Promulgation of Insurances Laws (Amendment) Ordinance 2014  :

• to remove archaic and redundant provisions in insurance laws
• empowering Insurance Regulatory and Development Authority to enable more effective regulation
• to increase the foreign equity cap in Indian Insurance Companies from 26% to 49%

Equity Markets continue to do well for the financial year 2014- 2015 as per the Economic Survey 2014- 15. The benchmark indices, BSE Sensex and Nifty showed a general upward trend in the current year with growth rates of 29.9 % and 31.4 % year on year.

Reform initiatives in financial sector during 2014- 2015      

1.      Improvement in Corporate Governance norms

2.      Establishment of a foreign portfolio investor for better functioning of both primary and secondary markets

Overall Economic Survey 2014-15 talks about increased financial inclusion, improved insurance penetration and fast growing equity markets in India. It also dwells into the problems faced by the banking sector and the major policy initiatives by the government to enable the growth of banking, insurance and financial sectors.

Financial sector reform expands foreign investment limits and banking liberalisation to boost inclusion and capital mobilisation. Reforms targeted structural liberalisation and regulatory strengthening across banking, insurance and financial markets to expand access to capital, broaden participation, and improve supervision. Banking measures allowed dilution of government shareholdings to raise capital, approvals for new private banks, and guidelines for payments banks; the central bank issued prompt action guidance, tightened asset reconstruction investment norms, and allowed flexibility in project lending. Insurance reforms amended laws to empower the regulator and raised the foreign equity cap, while governance improvements and foreign portfolio investor mechanisms were introduced to deepen markets and promote financial inclusion.