The document discusses banking sector reforms in India following recommendations from the Narasimhan Committee reports in 1991 and 1998. Some of the key reforms included allowing private sector banks, establishing a tiered banking structure, setting up an asset reconstruction fund, reducing statutory reserve requirements, implementing prudential norms, and increasing competition through new private banks. Many of the committee's recommendations aimed to make the banking sector stronger and improve standards of transparency.
The document discusses banking sector reforms in India following recommendations from the Narasimhan Committee reports in 1991 and 1998. Some of the key reforms included allowing private sector banks, establishing a tiered banking structure, setting up an asset reconstruction fund, reducing statutory reserve requirements, implementing prudential norms, and increasing competition through new private banks. Many of the committee's recommendations aimed to make the banking sector stronger and improve standards of transparency.
The document discusses banking sector reforms in India following recommendations from the Narasimhan Committee reports in 1991 and 1998. Some of the key reforms included allowing private sector banks, establishing a tiered banking structure, setting up an asset reconstruction fund, reducing statutory reserve requirements, implementing prudential norms, and increasing competition through new private banks. Many of the committee's recommendations aimed to make the banking sector stronger and improve standards of transparency.
The document discusses banking sector reforms in India following recommendations from the Narasimhan Committee reports in 1991 and 1998. Some of the key reforms included allowing private sector banks, establishing a tiered banking structure, setting up an asset reconstruction fund, reducing statutory reserve requirements, implementing prudential norms, and increasing competition through new private banks. Many of the committee's recommendations aimed to make the banking sector stronger and improve standards of transparency.
Download as PPTX, PDF, TXT or read online from Scribd
Download as pptx, pdf, or txt
You are on page 1of 16
Banking Sector Reforms
Banking Sector Reforms
Banking sector reforms in 1990s in India were based on
the report of the committee headed by Mr.M.Narasimhan in 1991. Major recommendations of the committee were as follows:
1. There should be no bar to set up new banks in the
private sector, provided they have the start-up capital and other requirements prescribed by RBI. 2. The government should indicate that there would be no further nationalization of banks and there should not be difference in the treatment of public and private sector banks.
3. Establishment of 4 tier hierarchy for banking structure
with 3 to 4 large banks (including SBI) at top and at bottom rural banks engaged in agricultural activities 4. There should be an Asset Reconstruction Fund(ARF) which could take over from the banks and Financial Institutions (FIs) a portion of their bad and doubtful debts at a discount, the level of discount being determined by independent auditors on the basis of clearly defined guidelines. The ARF should be provided with special powers for recovery. 5. The Banks and Financial Institutions should be authorized to recover bad debts through special tribunals and based on the valuation given in respect of each asset by panel of at least 2 auditors.
6. Branch licensing should be abolished and the option of
opening branches or closing branches other than rural banks should be left to the commercial judgment of the individual banks. Further, internal organization of the banks is best left to judgment of the management of individual banks 7. Phased reduction in Statutory Liquidity Ratio (minimum amount of assets to be maintained by all banks) and Cash Reserve ratio (certain percentage of their deposits to be maintained in the form of balances with the central bank).
8. Phased achievement of 8% Capital Adequacy Ratio
(Minimum capital to risk assets ratio)
9. Proper classification of assets and full disclosure of accounts
of banks and financial institutions.
10. There should be speedy computerization of banking sector.
• 11. Foreign banks should be subjected to the same requirements as are applicable to Indian banks and RBI should be more liberal in respect of allowing foreign banks to open subsidiaries. • Most of the recommendations of the committee were implemented. Banking Reform Measures Of Government
On the recommendations of Narasimhan Committee, following
measures were undertaken by government since 1991 :-
1. Local Area banks (LABs)
2. Supervision Of Commercial Banks (Board of Financial
Supervision) (Department of supervision)
3. Lowering SLR And CRR
4. Capital Adequacy Norms (CAN)
5. Freedom Of Operation 6. Prudential Norms
7. Deregulation Of Interest Rates
8. Competition From New Private Sector Banks
9. Recovery Of Debts (Recovery of Debts due to
Banks and Financial Institution Act 1993)
10. Access To Capital Market
• SECOND PHASE OF REFORMS OF BANKING SECTOR (1998) / NARASIMHAN COMMITTEE REPORT 1998 To make banking sector stronger the government appointed Committee on banking sector Reforms under the Chairmanship of M. Narasimhan. It submitted its report in April 1998. The Committee placed greater importance on structural measures and improvement in standards of disclosure and levels of transparency 1) The committee cautioned the merger of strong banks with weak ones as this may have negative effect on stronger banks. 2) It suggested that 2 or 3 large banks should be given international orientation and global character. 3) There should be 8 to10 national banks and large number of local banks. 4) It suggested new and higher norms for capital adequacy. 5) To take over the bad debts of banks committee suggested setting up of Asset Reconstruction Fund. 6) A Board for Financial Regulation and supervision (BFRS) can be set up to supervise the activities of banks and financial institutions.
7) There is urgent need to review and amend the
provisions of RBI Act, Banking Regulation Act, etc. to bring them in line with current needs of industry. 8) Net Non-performing Assets for all banks was to be brought down to 3% by 2002.
9) Rationalization of bank branches and staff was
emphasized. Licensing policy for new private banks can be continued.
10) Foreign banks may be allowed to set up subsidiaries
and joint ventures. •
• On the recommendations of committee following
reforms have been taken :- • 1.New Areas • 2) New Instruments • 3) Risk Management • 5) Increase Inflow Of Credit • 6) Increase in FDI Limit • 7) Information Technology • 10) Management Of NPAs