Narasimham Committee Presented by: ASHUTOSH A. ANAY V. KUSHANG T. ARCHANA T.
1969- Banks Nationalization
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.
Why 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
T he Narasimham Committee laid the foundation for the reformation of the Indian banking sector
About the committee
Higher rates of CRR(15%) and SLR(38.5%)
Directed credit programs
Political and Administrative interference
Subsidizing of credit
Mounting expenditures of banks
Problems faced then
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
The main recommendations of the Committee were: -
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.
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.
Committee On Banking Sector Reforms 1998
Need for stronger banking system
Experiment with concept of narrow banking
Small local banks
Capital Adequacy Ratio
Review and update banking laws.
Major Recommendations of Narasimham Committee 1998
T he 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
LIABILITY Deposit interest rate Increase in capital Adequacy requirement ASSET Reforms on Lending rate Lower CRR and SLR IRAC norms Other Reforms Structural Reforms Entry to new business lines
‡ 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 Fact Contd….
‡ 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