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Financial Developments

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Budget 1998-99
Budget 1997-98
Budget 1996-97


Financial Developments

There has been slow but steady improvement in the performance of public sector banks. The ratio of Non Performing Assets to total advances in respect of public sector banks declined from 17.8 per cent in end 1996-97 to 16.0 per cent in end 1997-98. The ratio of net Non Performing Assets to net advances also declined from 9.2 per cent to 8.2 per cent in 1997-98.
Based on the recommendations of the Narasimham Committee (II) on Banking Sector Reforms, the Reserve Bank announced a number of decisions as part of its mid-term review of the monetary and credit policy released on October 30, 1998. These related to phased introduction of risk weight for Government/Approved Securities, risk weight for Government guaranteed advances, general provision for standards assets, higher Capital to Risk-Weighted Assets Ratio (CRAR, 9 per cent) for banks, etc. Based on the recommendations of the Task Force on Non-Banking Finance Companies (NBFCs), deposit acceptance norms have been rationalised by the RBI.
Sanctions and Disbursements by All India Financial Institutions continued their strong growth in 1998-99. During April-December 1998 Sanctions grew by 36.9 per cent and Disbursements grew by 12.5 per cent. This growth was consistent with the improved growth of production of capital goods.
Capital markets remained subdued during most of the year. Rs. 3929 crore was raised from the Primary Market during April-December, 1998 as against Rs. 3093 crore in the corresponding period of 1997-98. The bulk of the capital raised (nearly eighty per cent) was in the form of bonds, with very little in the form of equity issues. The Sensex, which had risen at the beginning of the year from 3893 on March 31,1998 to over 4200 in April, declined thereafter to 2934 by end-August 1998. It crossed the 3000 mark in September, 1998 but declined to 2878 on October 5, 1998, and remained below 3,000 for nearly three months. The last quarter of 1998-99 has, however, seen a revival, with the Sensex crossing 3400 in January 1999. This is perhaps reflective of the declining level of uncertainty and improved risk perceptions. 
The SEBI Board accepted most of the recommendations of the "Informal Group on Primary Markets". The recommendations accepted for immediate implementation were,
Primary issues to be made compulsorily through the depository mode after a specified date.
100 per cent book building in respect of issues of Rs. 25 crore and above.
Reduction in the number of mandatory collection centres in respect of issues above Rs. 10 crore to four metropolitan cities.
Measures taken to revive the secondary market included,
The Companies (Amendment) Ordinance, 1998 dated October 31, 1998 (and January 7, 1999) empowering companies to purchase their own shares or other specified securities subject to SEBI regulations
Amendment of SEBI take-over regulations permitting easier consolidation by promoters
Publication of unaudited results by listed companies on quarterly basis,
Rolling settlements in respect of dematerialised securities, and
Stringent margin requirements to curb excess volatility in share prices.
To facilitate flow of funds to the infrastructure sector, the SEBI decided to grant specific relaxation to public issues by infrastructure companies, which are defined under Section 10 (23G) of the Income Tax Act, 1961.
Notable developments in the Government securities market include,
Notifying issue size in respect of all Treasury bills,
Exclusion of non competitive bids from notified amounts,
Permission for FII debt funds to invest in both Government dated securities and treasury bills.
Amendments to RBI guidelines on transactions by FIIs to facilitate investment, by regular FII equity funds, in
Government dated securities and treasury bills, in both the primary and the secondary markets, within their debt
ceiling of 30 per cent.

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