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Governor Ishrat Husain and distinguished bankers,

At the outset, let me express my gratitude to Governor Husain for inviting me to visit Karachi and meet with you. I consider it an honour to be here amidst the banking fraternity. I would like to congratulate Pakistan for its impressive economic performance. Governor Husain, in his address at the Seminar on Management of Pakistan Economy in Lahore, a few weeks ago, had this to say about recent economic performance of Pakistan and challenges ahead, in his characteristically candid fashion:

"Economic growth rate has reached a solid 6 per cent plus, inflation has been contained to 5 per cent which has only recently started rising, exchange rate has been stabilized, fiscal deficit has been drastically reduced, domestic interest rates have declined dramatically, international reserves have jumped twelve times their 2000 level, debt ratios have fallen significantly and investment is booming."

He further added that,

"Pakistan has achieved macroeconomic stability, introduced structural reforms, improved economic governance and resumed the path for high growth rates. But there is no room for complacency."

Taking account of the nature of audience here and following the example of Governor Husain, who spoke eloquently on the banking sector reforms in Pakistan in January this year, I have chosen to present an overview of banking sector reforms in India.

It is useful to very briefly recall the nature of the Indian banking sector at the time of initiation of financial sector reforms in India in the early 1990s. The Indian financial system in the pre-reform period (i.e., prior to Gulf crisis of 1991), essentially catered to the needs of planned development in a mixed-economy framework where the public sector had a dominant role in economic activity.

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* Address by Dr. Y. V. Reddy, Governor, Reserve Bank of India, at the Institute of Bankers of Pakistan, Karachi, on May 18, 2005.