Banking sector reforms in

India
 Banking Sector Reforms In India

Banking is the kingpin of the chariot of the economic process. As such its role in the
expanding economy of the country like India can neither be underestimated or
overlooked. The banking industry different problems have on different phases of
development. As it is an important factor of financial sector , the eye remain focused on
the banking sector.

In pre-independence period and even after dependence banking was handicapped by
the poor saving habits of the peoples. In fact, the percentage of GDP is very low. At
present the saving grown well over 20% GDP. The illiteracy and saving habits to be
continues problem in the growth of banking sector in rural area.

During the second world war ,the number of bank office increased from 1951, in 1939
, to 5335 in 1945.the growth was primarily quantitative , unplanned and uncontrolled
like the wild plants growth in the jungle. This was going to create problem ultimately.

The position was controlled effectively with the enactment of the banking
(regulation) companies act 1949.
Banking Reforms Phases
NARASIMHAM COMMITTEE -1 ON BANKING
REFORMS

The narasimham committee was formed under former

RBI governor M. Narsimham in august 1991.
This is nine member committee.
The 1st Narasimham committee was set up by
MANMOHAN SINGH as India is finance minster on
14th august 1991.
The report of these committee had comprehensive
recommendations for financial sector reforms including
the banking sector and capital markets.
The committee submitted its report to the finance
minister in 1991.
First committee’s main
recommendations
 SLR & CRR
 Higher interest rates on SLR & CRR
 Phasing out of directed credit
 Deregulate interest rates
 Capital adequacy norms
 Adoption of uniform accounting practices
 Income recognition
 Provisioning
Conti….
 Transparency
 Structure of banking system
 Branch licensing
 Computerization
 Control
 Development of financial institutions
Implementation
Interest rate deregulation
Reduction in CRR & SLR
Dricted credit
Capital adequacy ratio
Prudential accounting standards
Private and foreign banks
Valuation of bank’s investments in govt. securities
Branch licensing
Conti…..
Bank’s access to capital market
Supervision
Customer services
Merger of banks
Recovery tribunals
computerisation
Recommendations of Narasimham
Committee-II
1. Need for a Strong Banking System
2. Merger of Strong Banks
3. Narrow Banking for Weak Banks
4. Confine Area for local Banks
5. Review of Govt. Role in Publis Sector Banks
6. Review Capital Adequacy Norms
7. Review Legislation
8. Lesser Regulations and Supervision
9. Integrate Lending Activities
10. Speed up Computerisation
Recommendations of Narasimham
Committee-II
11. Review Personal Policies
12. Safeguard against Vigilance Enquiries
13. Depoliticise Bank Boards
14. System for Asset-loability and Risk
Management
15. Asset Resonstruction Company (ARC)
16. New Watch Dog for Banks
17. Money Market Rate.
The khan committee(1998)
recommendations
Need for a super regulator
Move towards universal banking
Redefine priority sector
Mergers between FI’s and banks
Co-ordination Committee
Removal of certain restrictions on FI's
Recommations regarding state level
financial institutions
Other recommendations .