Financial sector includes financial institutions such as commercial hanks, investment banks,
stock exchanges and foreign exchange market. RBI controls and regulates all the banks and other financial institutions in India. The RBI decides the amount of money that the banks can lend and the amount they should keep as reserves, determines interest rates and prioritises lending to various, sectors apart from regulating foreign exchange.
One of the major aims of financial sector reforms is to transform the role of RBI from regulator to facilitator of financial sector. This means that greater autonomy maybe granted to the financial sector in taking decisions on various matters without consulting the RBI.
The reform policies led to establishment of private sector banks. Banks have been given freedom to setup new branches. Banks have been given permission to generate resources from India and abroad through capital market. All this has led to a substantial growth in the financial sector.