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Narasimham committee

Team members: Alankrita Shekhar Gayatri Pattnaik

Ritika Adhikari

Agenda Introduction Narasimham Committee 1991 Narasimham Committee 1998 Conclusion .

low capital base. was primarily restricted to the function of channeling resources from the surplus to deficit sectors.  The banking sector suffered from lack of competition.  The principal objective of financial sector reforms was to  improve the allocative efficiency of resources and  accelerate the growth process of the real sector by removing structural deficiencies affecting the performance of financial institutions and financial markets. until the early 1990s. low productivity and high intermediation cost. .Introduction to Financial Reforms  The role of the financial system in India.

Major Recommending Committees In Financial Reform  Chakravarty Committee (1985)  Vaghul Committee (1987)  Narasimham Committee (1991)  Narasimham Committee (1998)  Verma Committee (1999) .

focused mainly on enabling and strengthening measures. 1998 (Chairman: Shri M. M. Narasimham).  The first phase of reforms. 1992 (Chairman: Shri M. second phase of reforms. .Introduction to Narasimham Committee  Reforms in the commercial banking sector had two distinct phases.  The  The Committee was first set up in 1991 under the chairmanship of Mr. Narasimham) placed greater emphasis on structural measures and improvement in standards of disclosure and levels of transparency in order to align the Indian standards with international best practices.Narasimham who was 13th governor of RBI. introduced subsequent to the recommendations of the Committee on Banking Sector Reforms. introduced subsequent to the release of the Report of the Committee on Financial System.

Agenda Introduction Narasimham Committee 1991 Narasimham Committee 1998 Conclusion .

Narasimham Committee report 1 .year 1991  Reduction in the CRR and SLR  Elimination of government control on interest rate determination  Structural Reorganization of the Banking sector  Establishment of the ARF tribunal  Removal of Dual Control  Stopping the Directed Credit Programme  Banking Autonomy of PSUs .

Banking reform measures of government  Lowering SLR And CRR  Deregulation Of Interest Rates  Recovery Of Debts  Competition From New Private Sector Banks  Phasing Out Of Directed Credit  Freedom Of Operation  Supervision Of Commercial Banks .

Agenda Introduction Narasimham Committee 1991 Narasimham Committee 1998 Conclusion .

.year 1998  Strengthening the Banks in India  Capital Adequacy ratio  Autonomy in Banking  Review of the Banking Laws  In addition to these recommendations the committee also recommended faster computerization. training of staff. depoliticizing of banks. professionalism in banking etc. upgrade of technology.Narasimham Committee report 2 .

carry a 100 per cent risk weight PRESENT STATUS Already implemented More stringent norms under Basel II already implemented More stringent norms under Basel II already implemented .Important Recommendations RECOMMENDATION Increased CAR requirements. government and other approved securities should have a 5 per cent weight instead of zero risk weight for market risk. Foreign exchange open credit limit risks to be integrated into the calculation of risk weighted assets. should include market risks in addition to the credit risks In the next three years the entire portfolio of government securities should be marked to market.

the DFIs should. IDBI too has followed the same. costs for higher profitability. Develop information and control system in several areas like better tracking of spreads. Independent loan review mechanism especially for large borrowal accounts and systems to identify potential NPAs. NPA norms have been implemented An asset be classified as doubtful if it is in the substandard category for 18 months in the first instance and eventually for 12 months and loss if it has been identified but not written off . Banks may stipulate in-house prudential limits PRESENT STATUS ICICI Ltd. Asset Liability Management and improvement in treasury have already been introduced in banks. The major banks have already implemented these exposure limits.Important recommendations RECOMMENDATION With the conversion of activities between banks and DFIs. merged with ICICI Bank Ltd. over a period of time convert themselves to bank. accurate and timely information Risk Management.

Introduction of a general provision of 1 per cent on standard assets in a phased manner be considered by RBI Implemented w.e. PNB. year ending 31/03/2004. Union Bank etc. have already successfully launched IPOs Income stops accruing when interest or installment of principal is not paid within 180 days. Public Sector Banks in a position to access the capital market at home PRESENT STATUS This has been accepted for implementation. which should be reduced to 90 days in a phased manner by 2002. UCO Bank.Important recommendations RECOMMENDATION Reform of the deposit insurance scheme based on CAMELs ratings awarded by RBI to banks. Canara Bank. Already implemented .f.

.  Mergers of large Public Sector Banks of equivalent size should emanate from the management of the banks with the Government as the common shareholder playing a supportive role.Critical reforms yet to be implemented  The minimum share of holding by Government/Reserve Bank in the equity of the nationalised banks and the State Bank should be brought down to 33%.

Agenda Introduction Narasimham Committee 1991 Narasimham Committee 1998 Conclusion .

. including the Planning commission of India  During the 2008 economic crisis of major economies worldwide. performance of Indian banking sector was far better than their international counterparts.Conclusion  Recommendations were well received in all quarters(except employee unions of banks).  This was also credited to the successful implementation of the recommendations of the Narasimham Committee-II  The impact of the two committees has been so significant that elite politicians and financial sectors professionals have been discussing these reports for more than a decade since their first submission applauding their positive contribution.

Thank you .