Banking Expansion and Monetary Intermediation in India-An Analysis of the Recent Trends

Monetary intermediation between the household savers and corporate and business investors is crucial for raising the level of investment and economic activity in an economy and in accelerating the rate of its growth. Commercial banks as the major financial intermediaries play the crucial role in such intermediation. Increasing monetary intermediation necessitates a wide and geographically extended banking system and banking intensity in the country. The aim of this paper is to analyze the trends in banking expansion and banking intensity and in monetary intermediation in India since 1991, preceded by a brief discussion of the trends prior to 1991. The analysis shows that while growing banking intensity is crucial for increasing monetary intermediation, there are factors other than banking intensity that affect the rate of monetary intermediation in the country. The analysis also points out certain requirements of increased monetary intermediation in the country.