What are the Measures Taken for the Improvement of Indian Monetary Market?

On account of the disorganised condition of the money market, the Reserve Bank is not able to enforce its monetary measures effectively in order to realise the objectives of a uniform monetary policy and its influence over credit control.

The Reserve Bank and the government, as such, are keen on removing the deficiencies of the Indian money market. From time to time, various steps have been taken in this direction, yet no desired results have been observed.

The following is a brief resume of the measures suggested and/or undertaken, from time to time, for improving the organisation of the money market in India:

(1) Legislative Measure:

The Unserious Loans Act, 1918. In 1918, the Government of India passed a law to check usury, under the Usurious Loans Act. Similarly, laws were enacted to compel money-lenders to maintain proper registers and accounts of their lending business. Money-lenders were also required to obtain licenses for carrying on their lending business.

(2) Co-operative Movement:

Further, as an alternative to money-lenders in rural finance, the development of co-operative credit societies has been encouraged by government since Independence.

By 1975, about 158,000 primary agricultural credit societies, with an approximate membership of 41.5 million, have been estbalished. Co-operative banking is regarded as the only practical solution to usury.

Thus, the former has a significant role to play in the present structure of the Indian financial system. To place co-operative banking on more scientific lines and to regulate it properly, the Banking Laws (Application to Co-operative Societies) Act was passed in 1964.

(3) Agricultural Refinance and Development Corporation:

To meet the credit needs of the agriculturists more comprehensively, the Agricultural Refinance Corporation was established in 1963, which refinances long-term loans furnished by Land Mortgage Banks and other credit institutions.

It was replaced by the National Bank for Agriculture and Rural Development (NABARD) in 1982.

(4) Agricultural Credit Board:

Recently, the Agricultural Credit Board of the Reserve Bank has introduced a scheme to link borrowings from the Reserve Bank with deposit mobilisation by central co-operative banks.

(5) Rural Banks:

In 1970, a scheme to finance primary agricultural credit societies by the commercial banks was introduced. Thus, a link between co-operatives and joint-stock banks was created.

In this context, it is interesting to note that a suggestion was made by the Banking Commission for constituting a rural bank for replacing the weak primary credit societies and, consequently, the affairs of rural banks were made the responsibility of the commercial banks. Recently, steps have been taken to establish regional banks.

(6) Extension of Credit Guarantee Scheme:

The Credit Guarantee Scheme of the Reserve Bank was extended to co-operative banks to enhance public confidence in co-operative banking.

(7) Link between Indigenous Bankers and Commercial Banks:

Steps were taken to establish relations between indigenous bankers and commercial banks. Those indigenous bankers who are on the approved list of joint-stock banks and the State Bank of India are entitled to receive cash credit from these banks against demand promissory notes signed by two of their bankers.

(8) Bill Market Schemes:

To develop the bill culture in the Indian money market, the Reserve Bank of India introduced two schemes, viz., (i) the Bill Market Scheme, 1952, and (ii) the New Bill Market Scheme, 1970, but with no commendable success.

(9) Nationalisation of Banks:

Commercial banks in India were originally in the private sector. Because these banks neglected agriculture and other priority sector, the Government of India took the bold decision to nationalise a number of commercial banks.

Eventually, in 1969, fourteen major commercial banks were nationalised. Nationalised banks have made considerable progress in the rural areas in financing the priority sectors.

(10) Lead Bank Scheme:

In December 1969, the Reserve Bank introduced a “Lead Bank Scheme” to eliminate banking deficiencies in rural areas. The Lead Bank Scheme implied the area approach to development.

The Scheme entrusted individual banks with the responsibility to locate growth centres, assess deposit potential and identify credit gaps and to evolve a coordinated programme for each district.

(11) Spread of Post-Offices Savings Banks:

The facilities of post-office banks are spread over the entire country. By 1978, there were 1.30 lakh post- offices possessing banking units. About 4/5ths of the branches were located in rural areas.

(12) Uniform Chit Fund Legislation:

Nidhis and chit funds, which are recognised by law, are required to be registered under the Indian Companies Act.

However, for effective control over them, the Central Government has proposed to introduce a special legislation called the Nidhis and Chit Funds Act, with a view to controlling and regulating their activities.

The Banking Commission has also suggested one uniform chit fund legislation for the entire country.