Current Situation in India’s Financial Sector
India’s financial system (banks, insurance, markets) has seen only slow and partial reforms.
Key problems still exist that block savings, investments, and economic growth.
Major reforms are urgently needed in bond markets, retirement tools, nomination rules, and shadow banking.
Nomination Issues Across Financial Services
Rules for nominees vary across banks, insurance, and mutual funds — causing confusion.
One account may allow one nominee, another multiple, with unclear legal rights.
This creates legal loopholes and can lead to court disputes, hurting ordinary savers.
A uniform nomination rule with clear nominee vs legal heir roles is needed.
Corporate Bond Market Problems
India’s corporate bond market is small, illiquid, and non-transparent.
A better bond market can lower borrowing costs for companies by 2–3%.
Despite RBI’s order, NSE didn’t develop a secondary bond market, likely due to higher profits from stock trading.
Lack of transparency and poor regulatory enforcement delay market development.
Reforms must also align with global standards on ownership transparency.
Ownership Transparency and UBO Disclosure
India, under FATF, must track Ultimate Beneficial Owners (UBOs) of investments.
Some foreign investors like Elara and Vespera Funds refused to fully disclose their ownership in Indian companies.
Current disclosure limits (10–15%) are too high, letting investors hide real control by staying just below the limit.
This secrecy harms market trust and hinders effective regulation.
Problems in Retirement Planning
Retirement saving in India depends heavily on annuities, which are costly due to high fees.
A better option: zero-coupon long-term government bonds, which are low-cost and safer.
Technology to offer such bonds already exists, but government and RBI haven’t promoted them.
Ignoring this misses the chance to build a strong, affordable retirement system.
Threat from Shadow Banking
Shadow banking involves NBFCs, brokers, and margin lenders acting like banks but without full oversight.
They give high-interest loans disguised as margin funding, often over 20%, without clear disclosure.
Investors may not even realize they’ve taken on such costly loans.
This resembles the 2008 financial crisis, which began with unregulated financial actors.
India should follow the EU by collecting full data on shadow banking to improve transparency and control.
What Needs to Be Done
India needs a clear, unified financial reform strategy, not just minor changes.
Reforms should include:
Uniform nomination rules
A deeper and transparent bond market
Better retirement tools using government bonds
Strong oversight of shadow banking
Stricter ownership disclosure rules
Only then can the financial sector become professional, investor-friendly, and growth-oriented.
COMMENTS