Narasimham Committee

Why the Committee

1969- to assess Bank 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
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 main recommendations of the Committee were:
- 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 of directed credit programme and
redefinition of the priority sector
Stipulation of minimum capital adequacy ratio of 8 per
cent by March 1996. (Capital adequacy ratios ("CAR")
are a measure of the amount of a bank's capital
expressed as a percentage of its risk weighted credit
exposures.)

Adoption of uniform accounting practices in regard to

income recognition, asset classification and
provisioning against bad and doubtful debts
 CONTD
Setting up of special tribunals to speed up the
recovery process of loans
Setting up of Asset Reconstruction Funds (ARFs) to
take over from banks a portion of their bad and
doubtful advances at a discount
Abolition of branch licensing
Liberalizing the policy with regard to allowing foreign
banks to open offices in India
Giving freedom to individual banks to recruit officers
Revised procedure for selection of Chief Executives
and Directors of Boards of public sector banks
Speedy liberalization of capital market
Enactment of a separate legislation providing
appropriate legal framework for mutual funds and
laying down prudential norms for such institutions, etc.
Committee On Banking Sector Reforms 1998
1998- Finance minister appointed Mr. Narasimham
as chairman of one more committee.
This committee was asked to review the progress
of banking sector reforms to date and a
programme on financial sector reforms to
strengthen India's financial system and make it
internationally competitive.
The committee submitted its report to the
government in April 1998.
The report covered issues like- capital adequacy,
bank mergers, recasting bank board, and creation
of global sized banks.
 Major Recommendations of Narasimham
Committee 1998

Need for stronger banking system

Experiment with concept of narrow banking

Small local banks

Capital Adequacy Ratio

Review and update banking laws.

 The Effect

Emergence of 9 new private sector banks

Opening up of vibrant capital market

Great impact on banks balance sheets both on assets

and liabilities side