REFORM PHASE

India faced a macro- economic crisis in 1991.

The economy was growing at a very low rate.

There was a general consensus that the banking system

has not become sound enough as it should have been. Therefore, Govt. of India appointed a high level committee headed by Shri M. Narsimham, a former Governor of the RBI to address the problems and suggest the remedial measures. The recommendations of the committee became the basis of financial sector and banking sector.

Recommendations of the Committee on the Financial system ( 1991- Narsimham Committee-I)

Phased reduction of Statutory Pre- emptions or reduction in SLR and CRR :- The committee recommended that SLR should be reduced to 25% and CRR should be reduced to 10% over a period. 2. Interest rates on CRR balances :- The committee had recommended payment of interest on eligible balances (i.e cash balances above the basic minimum of 3%). 3. Phasing out of Directed Credit:- The committee recommended that priority sector should be redefined to comprise the small and marginal farmers , the tiny sector of industry, small business and transport and village and cottage Industries ,rural artisans and other weaker sections. The target for this sector should be fixed at 10% of aggregate credit.
1.

4. Deregulate interest rate:- The committee felt that the

existing interest structure on loans and deposits is complex and there should be some market orientation and link deregulation with reduction in fiscal deficit. 5. Capital Adequacy Ratio :- the committee had recommended that BIS norms on capital adequacy should be achieved over a period of 3 years by March 1996. minimum 4% by 1993 and 8% should be achieved by March 1996. 6. Adoption of Uniform Accounting Practices :- The banks and financial institutions should adopt uniform accounting practices.

7. Transparency :- The balance sheets of banks and financial institutions should be made transpare4nt. Full disclosures should be made as per IASC. 8 Loan Recovery :- The committee suggested that Govt. Should take steps to ensure recovery of bank dues through creation of Recovery Tribunals. 9 Restructuring the Banks. 10 Tackling Doubtful debts. 11 Branch Licensing. 12 Control of banking system. 13 Supervision of Banks. 14 Foreign Banks. 15 Entry of Private banks.