Mumbai's dominance as a financial center is most visible in its banking transactions. The Reserve Bank of India (central bank) as well as the headquarters of most min banks are located here.

India has an extensive network of banks and financial institutions covering both urban and rural areas. It is estimated that there are some 63,000 branches across the Indian subcontinent, including those in small villages.

Significant reforms have been introduced to the banking sector in recent years, the most important of which was the entry of new private and foreign banks, as well as the easing of restrictions on foreign bank activities. The entry of new players helped improve customer service in general in light of tighter competition.

More recently, the government has opened the insurance industry, which had been monopolized by General Insurance Co. of India and the Life Insurance Co. of India, to the private sector.

Despite deregulation, India's banking sector is still dominated by public sector banks, led by the State Bank of India. State-owned banks account for more than 75% of total deposits and loans, while the share of domestic private banks is estimated at only 13%.

In the last decade, the government has reduced its shareholdings in public sector banks in order to raise capital. Although divestment has been slow, the administration is bent on diluting its share in nationalized banks to 33% from 51%.

It must be noted that the public sector character of these banks is not going to change despite the reduced shareholding.

India's bankers seem to have learned a thing or two from the Asian financial crisis in mid_1997 and the RBI continues to strengthen the supervisory and regulatory framework for commercial banks. Minimum capital adequacy ratio has been raised to 9% from 8% in March 2000, and will be further increased to 10%.

Banks are also required greater disclosure of maturity patterns, foreign currency assets and liabilities, lending to sensitive sectors, and level of non-performing loans.