NARASIMHAN COMMITTEE (1997-98) The Committee on banking sector reforms under the ownership of Mr.

Narasimhan was constituted on December26 1997 to review the record of financial sector reforms recommended by the Committee on Financial System in 1991 and to suggest essential measures for strengthening the banking system, institutional structure, and supervision system, legislative and technological changes. The major recommendations of the Committee are as follows: i. ii. iii. iv. v. vi. vii. viii. ix. Merge strong banks and close weak unviable banks. Strengthen legal framework to accelerate the credit recovery. Increase capital adequacy to match enhanced banking risk. Budgetary support non variable for recapitalisation. Depoliticise Bank Boards under RBI supervision. No alternative to asset reconstruction fund. Review major banking laws. Rationalise Branches and start, review recruitment and remuneration. Integrate NBFC activities with banks.

SELECTIVE CREDIT CONTROLS: Selective credit control means to regulate credit for specific purposes. Under the Banking Regulation Act, 1949, section 2 empowers RBI to issue directives to the banking companies regarding their advances. The RBI directives relating to selective credit controls may be as follows: i. ii. iii. iv. v. The purpose for which advances may or may not be made. The margins to be maintained in respect of secured advances. The maximum amount of advance to any borrower. The maximum amount up to which guarantees can be given by the banking company on behalf of any firm, company etc. The rate of interest and other terms and conditions for granting advances.

MONEY MARKET: It is a centre in which financial institutions join together for the purpose of dealing in financial or monetary assets, which may be of short term maturity or long term maturity. The short term means, generally a period upto one year and the term near substitutes to money, denotes any financial asset which can be quickly converted into money with minimum transaction cost.

Terms relating to Money Market: Money Market: Refers to the market for short-term requirement and deployment of funds. Call Money: Money lent for one day. Notice Money: Money lent for a period exceeding one day. Term Money: Money lend for 15 days or more in Inter-bank market. Held till maturity: Securities which are not meant for sale and shall be kept till maturity. Held for trading: Securities acquired by the banks with the intention to trade by taking advantage of the short-term price/ interest rate movements will be classified under held for trading. Available for sale: The securities which do not fall within the above two categories i.e. HTM or HFT will be classified under available for sale. Yield to maturity: Expected rate of interest on an existing security purchased from the market. Coupon Rate: Specified interest rate on a fixed maturity security fixed at the time of issue. Treasury operations: Trading in government securities in the market. An investor Bank can purchase these securities in the primary market. Trading takes place in the secondary market. Gilt Edged security: Government security that is a claim on the government and is a secure financial instrument which guarantees certainty of both capital and interest. These securities are free of default risk or credit risk, which leads to low market risk and high liquidity.