1969- to assess Bank Nationalization Effects Phenomenal increase in the geographical coverage of our banking and financial institutions. Despite impressive quantitative achievement- low efficiency and productivity, bad portfolios performance, and eroded profitability. Several public sector banks and financial institutions were incurring losses year after year. About the committee 1991 -RBI proposed the committee chaired by M. Narasimham, former RBI Governor to review the Financial System Review- aspects relating to the Structure, Organization, Procedures and Functioning of the financial system Constituted in 1991, the Committee submitted two reports, in 1992 and 1998, which laid significant thrust on enhancing the efficiency and viability of the banking sector The Narasimham Committee laid the foundation for the reformation of the Indian banking sector Problems faced then Higher rates of CRR(15%) and SLR(38.5%)
Directed credit programs
Political and Administrative interference
Subsidizing of credit
Mounting expenditures of banks
The main recommendations of the Committee were: - Reduction of Statutory Liquidity Ratio (SLR) to 25 per cent over a period of five years Progressive reduction in Cash Reserve Ratio (CRR) to 3-5% Phasing out of directed credit programme and redefinition of the priority sector Stipulation of minimum capital adequacy ratio of 8 per cent by March 1996. (Capital adequacy ratios ("CAR") are a measure of the amount of a bank's capital expressed as a percentage of its risk weighted credit exposures.)
Adoption of uniform accounting practices in regard to
income recognition, asset classification and provisioning against bad and doubtful debts CONTD Setting up of special tribunals to speed up the recovery process of loans Setting up of Asset Reconstruction Funds (ARFs) to take over from banks a portion of their bad and doubtful advances at a discount Abolition of branch licensing Liberalizing the policy with regard to allowing foreign banks to open offices in India Giving freedom to individual banks to recruit officers Revised procedure for selection of Chief Executives and Directors of Boards of public sector banks Speedy liberalization of capital market Enactment of a separate legislation providing appropriate legal framework for mutual funds and laying down prudential norms for such institutions, etc. Committee On Banking Sector Reforms 1998 1998- Finance minister appointed Mr. Narasimham as chairman of one more committee. This committee was asked to review the progress of banking sector reforms to date and a programme on financial sector reforms to strengthen India's financial system and make it internationally competitive. The committee submitted its report to the government in April 1998. The report covered issues like- capital adequacy, bank mergers, recasting bank board, and creation of global sized banks. Major Recommendations of Narasimham Committee 1998
Need for stronger banking system
Experiment with concept of narrow banking
Small local banks
Capital Adequacy Ratio
Review and update banking laws.
The Effect
Emergence of 9 new private sector banks
Opening up of vibrant capital market
Great impact on banks balance sheets both on assets