Bank of baroda

Mutual Funds
As of the end of March 2005, there were 29 mutual funds in India with total net assets of Rs. 1495.54 billion. From 1963
to 1987, Unit Trust of India was the only mutual fund operating in India. It was set up in 1963 at the initiative of the
Government and RBI. From 1987 onwards, several other public sector mutual funds entered this sector. These mutual
funds were established by public sector banks, the Life Insurance Corporation of India and General Insurance Corporation
of India. The mutual funds industry was opened up to the private sector in 1993. The industry is regulated by the SEBI
(Mutual Fund) Regulation 1996.
Liberalisation and the Reform Process
Impact of Liberalisation on the Banking Sector
Until 1991, the financial sector in India was heavily controlled, and commercial banks and term lending institutions, the
two dominant financial intermediaries, had mutually exclusive roles and objectives and operated in a largely stable
environment, with little or no competition. Term lending institutions were focused on the achievement of the Indian
government’s various socio-economic objectives, including balanced industrial growth and employment creation, especially
in areas requiring development. These lending institutions provided access to long-term funds at subsidised rates through
loans and equity from the Government of India and from funds guaranteed by the Government of India originating from
commercial banks in India and foreign currency resources originating from multilateral and bilateral agencies.
The focus of the commercial banks was primarily to mobilise household savings through demand and time deposits and
to use these deposits to meet the short-term financial needs of borrowers in industry, trade and agriculture. In addition,
the commercial banks provided a range of banking services to individuals and businesses.
However, since 1991, there have been comprehensive changes in the Indian financial system. Various financial sector
reforms, implemented since 1991, have transformed the operating environment of the banks and long-term lending
institutions. In particular, the deregulation of interest rates, the emergence of a liberalised domestic capital market, and
entry of new private sector banks, along with the broadening of term lending institutions’ product portfolios, have
progressively intensified the competition among banks and term lending institutions. RBI has permitted the transformation
of term lending institutions into banks subject to compliance with the applicable law.