Narasimham Committee

Banking and Insurance

 The Presenting Committee
• Ashish Prabhu
• Rohan Sadula
• Priya Krishnamurthy
• Ankush Poojari
• Amar Chada
• Amod Bhat
 Why the Committee
• 1969- Banks 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
 About the committee
• 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 Time Line

1991 1992 1993 1994

Introduction to Risk weighted

1st Deregulation
Banking
Narasimham
capital adequacy
ombudsman
Committee
of interest
norms
scheme
rates
and
Report
prudential norms
 The Time Line (Cont.)

1995 1996 1997 1998

Guidelines on Risk management

2nd
First
Local
Narasimhan
shared
Area Banks
payment
committee
introduced
network
report
issued by RBI
 Major Recommendations
• 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 direct credit programs and
redefining the priority sector
• Setting the capital adequacy ratio (CAR) to 8
percent by March 1996
 Major Recommendations
• Opening of More Pvt. sector banks
• Motivation foreign banks to expand their
network by opening new branches
• Deregulation of RBI and Finance ministry of
India. Making RBI as a regulator of all Banks and
let Banks takes participation in equity market
with govt. stake of 51%
• Other Regulation introduced by RBI include Asset
classification ,NPA ratio
 Major Recommendations (cont.)
• Corporate Governance : promoting customer
relations and office culture
• Asset Reconstruction for bringing down NPA in
future
• Risk Management
• CDR
• E-Banking and VRS
 Narasimham Committee 2
• Review
– Progress of banking sector reforms to
date

– Financial sector reforms to strengthen

India's financial system and make it
internationally competitive
 Major Recommendations

• Need for stronger banking system

• Experiment with concept of narrow banking

• Small local banks

• Capital Adequacy Ratio
• Review and update banking laws.
 The Effect

Great impact
on banks’
Opening up of balance sheets
vibrant capital both on assets
market and liabilities
side
Emergence of 9
new private
sector banks
 The Effect (Cont.)
• Deposit interest rate
• Increase in capital Adequacy
requirement
Liability Side

• Reforms on Lending rate

• Lower CRR and SLR
• IRAC norms
Asset Side

• Structural Reforms
• Entry to new business lines

Other Reforms
 Some Facts…
• Nationalization of banks in 1969: 14 banks were
nationalized
• Branch expansion: Increased from 8260 in 1969
to 71177 in 2006
• Population served per branch has come down
from 64000 to 16000
• A rural branch office serves 15 to 25 villages
within a radius of 16 kms
• However, at present only 32,180 villages out of 5
lakh have been covered
 Some Facts…
• Deposit mobilization
– 1951-1971 (20 years)- 700% or 7 times
– 1971-1991 (20 years)- 3260% or 32.6 times
– 1991- 2006 (11 years)- 1100% or 11 times
• Expansion of bank credit: Growing at 20-30% p.a.
thanks to rapid growth in industrial and agricultural
output
• Development oriented banking: priority sector
lending
 Some Facts…
• Diversification in banking: Banking has moved from
deposit and lending to
– Merchant banking and underwriting
– Mutual funds
– Retail banking
– ATMs
– Internet banking
– Venture capital funds
– Factoring
A penny saved is a penny earned

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