The document discusses India's financial sector reforms since the 1990s. It summarizes the key recommendations of the Narasimham Committees in 1991 and 1998 that helped modernize and strengthen India's banking system. The 1991 report recommended establishing a tiered banking structure, reducing statutory reserves, and deregulating interest rates. The 1998 report focused on increasing capital requirements, promoting bank mergers, and reviewing banking laws and ownership. The government implemented many changes based on these reports, including lowering reserve requirements, introducing prudential norms, allowing new private banks, and establishing mechanisms for debt recovery.
M Narasinhan committee on banking sector reformsShwetanshu Gupta
The document discusses the M. Narasimhan Committee, which was formed in 1991 and 1998 to study issues in India's banking system and recommend reforms. The 1991 committee recommended reducing high statutory reserve requirements to free up bank resources, restructuring banks, and establishing an asset reconstruction fund. The 1998 committee focused on strengthening banks' capital adequacy, allowing private sector competition, and reforming banking laws and regulations. Both committees' recommendations helped modernize India's banking system.
Banking sector reforms post economic liberalization periodKumar Nirmal Prasad
The banking sector in India was dominated by public sector banks until reforms began in 1991. A committee was formed under M. Narasimhan to recommend reforms. Key recommendations included establishing a tiered banking structure, reducing statutory reserves, introducing capital adequacy and asset classification standards, and deregulating interest rates. The government then implemented several reforms based on these recommendations, such as lowering reserve requirements, introducing prudential norms, allowing new private banks, and reducing directed lending. This increased competition and efficiency in the banking sector.
Banking sector reforms in india after 1991Bikram Pradhan
The Narasimhan Committee made several recommendations in 1991 to reform India's banking sector as part of broader economic reforms. These included establishing a tiered banking structure, reducing statutory reserves, achieving an 8% capital adequacy ratio, and abolishing branch licensing. In response, the government lowered statutory reserves, implemented prudential norms, capital adequacy requirements, interest rate deregulation, debt recovery laws, and allowed new private banks to increase competition in the sector.
The document discusses the Narasimham Committee reports from 1991 and 1998 that were pivotal in reforming India's financial system. The 1991 report recommended reducing CRR and SLR ratios, phasing out directed credit, interest rate deregulation, bank restructuring, and increasing autonomy. The 1998 report focused on strengthening banks through mergers, raising capital adequacy ratios, reducing NPAs, and reviewing banking laws. The recommendations helped transform India's banking system and supported the country's economic growth.
Commercial banks are financial institutions that accept deposits from the public and provide loans to earn a profit. Their main functions are accepting deposits, lending funds through various loans and credit facilities, and acting as an agent for other financial services. Commercial banks aim to earn profit by charging higher interest rates on loans than what they pay depositors. The key features of commercial banks are borrowing from depositors and lending funds to earn interest. In India, most commercial banks are joint stock banks like Punjab National Bank and Bank of Baroda.
The document discusses the Narasimham Committee I and II, which were committees set up by the Government of India to analyze and reform the financial system. Narasimham Committee I was appointed in 1991 in response to the balance of payments crisis and made recommendations around reducing CRR and SLR, interest rate deregulation, and restructuring banks. Narasimham Committee II was appointed in 1998 to review implementation of banking reforms and made further recommendations around issues like bank size and capital adequacy ratios. The committees' recommendations helped strengthen India's banking system and its performance during the 2008 financial crisis.
The document reviews money market reforms in India and evaluates their current status. It discusses the history of money market reforms since 1991, including reductions to reserve requirements and interest rates as well as the introduction of new instruments. However, it argues that further reforms are still needed to develop debt markets fully and introduce innovative products that better serve small entrepreneurs, farmers, and the poor. Rural access to banking also remains inadequate despite reforms.
The document reviews money market reforms in India and evaluates their adequacy. It discusses the history of money market reforms since 1991, including reductions to statutory reserve requirements, increased banking freedom and private sector participation, and new money market instruments. However, the author argues that further liberalization and innovations are still needed, particularly to better serve small entrepreneurs, artisans, farmers and poor people.
M Narasinhan committee on banking sector reformsShwetanshu Gupta
The document discusses the M. Narasimhan Committee, which was formed in 1991 and 1998 to study issues in India's banking system and recommend reforms. The 1991 committee recommended reducing high statutory reserve requirements to free up bank resources, restructuring banks, and establishing an asset reconstruction fund. The 1998 committee focused on strengthening banks' capital adequacy, allowing private sector competition, and reforming banking laws and regulations. Both committees' recommendations helped modernize India's banking system.
Banking sector reforms post economic liberalization periodKumar Nirmal Prasad
The banking sector in India was dominated by public sector banks until reforms began in 1991. A committee was formed under M. Narasimhan to recommend reforms. Key recommendations included establishing a tiered banking structure, reducing statutory reserves, introducing capital adequacy and asset classification standards, and deregulating interest rates. The government then implemented several reforms based on these recommendations, such as lowering reserve requirements, introducing prudential norms, allowing new private banks, and reducing directed lending. This increased competition and efficiency in the banking sector.
Banking sector reforms in india after 1991Bikram Pradhan
The Narasimhan Committee made several recommendations in 1991 to reform India's banking sector as part of broader economic reforms. These included establishing a tiered banking structure, reducing statutory reserves, achieving an 8% capital adequacy ratio, and abolishing branch licensing. In response, the government lowered statutory reserves, implemented prudential norms, capital adequacy requirements, interest rate deregulation, debt recovery laws, and allowed new private banks to increase competition in the sector.
The document discusses the Narasimham Committee reports from 1991 and 1998 that were pivotal in reforming India's financial system. The 1991 report recommended reducing CRR and SLR ratios, phasing out directed credit, interest rate deregulation, bank restructuring, and increasing autonomy. The 1998 report focused on strengthening banks through mergers, raising capital adequacy ratios, reducing NPAs, and reviewing banking laws. The recommendations helped transform India's banking system and supported the country's economic growth.
Commercial banks are financial institutions that accept deposits from the public and provide loans to earn a profit. Their main functions are accepting deposits, lending funds through various loans and credit facilities, and acting as an agent for other financial services. Commercial banks aim to earn profit by charging higher interest rates on loans than what they pay depositors. The key features of commercial banks are borrowing from depositors and lending funds to earn interest. In India, most commercial banks are joint stock banks like Punjab National Bank and Bank of Baroda.
The document discusses the Narasimham Committee I and II, which were committees set up by the Government of India to analyze and reform the financial system. Narasimham Committee I was appointed in 1991 in response to the balance of payments crisis and made recommendations around reducing CRR and SLR, interest rate deregulation, and restructuring banks. Narasimham Committee II was appointed in 1998 to review implementation of banking reforms and made further recommendations around issues like bank size and capital adequacy ratios. The committees' recommendations helped strengthen India's banking system and its performance during the 2008 financial crisis.
The document reviews money market reforms in India and evaluates their current status. It discusses the history of money market reforms since 1991, including reductions to reserve requirements and interest rates as well as the introduction of new instruments. However, it argues that further reforms are still needed to develop debt markets fully and introduce innovative products that better serve small entrepreneurs, farmers, and the poor. Rural access to banking also remains inadequate despite reforms.
The document reviews money market reforms in India and evaluates their adequacy. It discusses the history of money market reforms since 1991, including reductions to statutory reserve requirements, increased banking freedom and private sector participation, and new money market instruments. However, the author argues that further liberalization and innovations are still needed, particularly to better serve small entrepreneurs, artisans, farmers and poor people.
The document discusses the history and reforms of the banking industry in India. It describes the industry's evolution through five phases: evolutionary, foundation, expansion, consolidation, and reformatory. Major reforms since the 1990s included liberalizing interest rates, reducing statutory preemptions like CRR and SLR, increasing competition through private banks and foreign banks, and improving regulation and supervision. The reforms have led to improved access to credit, more independent monetary policymaking, and greater operational freedom for banks.
The document discusses the recommendations of the Narsimham Committee I and II on financial sector reforms in India. Narsimham Committee I recommended reducing SLR and CRR over time to allow banks to lend more productively. It also recommended redefining priority sectors, deregulating interest rates, reducing number of public sector banks, establishing an asset reconstruction fund, and allowing profitable banks to raise capital from markets. Narsimham Committee II focused on strengthening banks, adopting the narrow banking concept for weak banks, raising capital adequacy norms, reviewing bank ownership models, and updating banking laws.
Narsimha committee report on financial reformsPankaj Baid
The Narasimham Committee was formed in 1991 and 1998 to examine aspects of financial system reforms in India. The 1991 committee recommended reducing CRR and SLR, phasing out directed credit, interest rate deregulation, and restructuring banks. The 1998 committee focused on strengthening banks through mergers and raising capital adequacy ratios. Both committees significantly impacted Indian banking sector reforms.
The Narasimham Committee was formed in 1991 and 1998 to reform India's financial system. The 1991 report recommended reducing statutory liquidity and cash reserve ratios, phasing out directed credit programs, deregulating interest rates, restructuring banks, and establishing an asset recovery tribunal. The 1998 report recommended strengthening banks' capital adequacy, narrowing weak banks' scopes, reviewing banking laws, and increasing bank autonomy and privatization. Both reports aimed to modernize and stabilize India's banking system.
Banking originated in India in the late 18th century with the Bank of Hindustan and General Bank of India. The oldest and largest bank still in existence is the State Bank of India, which originated from the Bank of Calcutta in 1806. The three presidency banks of Bengal, Bombay and Madras merged in 1921 to form the Imperial Bank of India, which became the State Bank of India after independence. Banking reforms since the early 1990s have led to increased competition and participation of private banks in India's banking sector.
This document provides an overview of the impact of banking sector reforms in India. It discusses the necessity for reforms in the 1990s due to economic crisis. It outlines the key recommendations of the 1991 and 1998 Narasimhan Committees, which served as the basis for reforms. The reforms focused on reducing reserve requirements, introducing prudential norms, capital adequacy norms, interest rate deregulation, and allowing private sector banks. The impacts of the reforms included improved productivity, profitability and asset quality of banks as well as enhanced customer services and corporate lending. Overall, the reforms helped make the Indian banking sector more robust and competitive.
The document summarizes the key recommendations of the Committee on Banking Sector Reforms in India in the 1990s. The committee recommended a four-tiered banking hierarchy, reduction in statutory reserve ratios over 5 years, increased capital adequacy ratios, better classification of bank assets, and reforms to priority lending, non-performing assets, and increased autonomy and technology for banks. In the second phase, it recommended further consolidation of banks, increased capital ratios, strengthening credit recovery, reducing non-performing assets, and allowing more foreign bank participation.
The document provides an overview of the history and development of banking in India. It discusses the following key points:
1. Banking in India can be broadly classified into commercial banks, cooperative banks, regional rural banks, and foreign banks. The Reserve Bank of India acts as the central bank.
2. The Indian banking system has undergone significant reforms since the early 1990s to increase efficiency and competition. This included reducing reserve requirements, deregulating interest rates, and allowing more private sector and foreign banks.
3. Reforms have helped improve banks' profitability and diversification of services. However, more reforms are still needed to strengthen the system and ensure banks can meet the challenges of globalization.
The document discusses the recommendations of the Narsimham Committee I, which was formed in 1991 to recommend reforms for improving the efficiency and effectiveness of India's financial system and banking sector. The committee recommended several reforms, including reducing statutory pre-emptions like SLR and CRR, introducing interest payments on CRR balances, phasing out directed lending programs, increasing transparency, improving loan recovery processes, deregulating interest rates, restructuring banks, introducing standardized asset classification and provisioning norms, allowing entry of private banks, abolishing branch licensing controls, implementing capital adequacy requirements, standardizing income recognition practices, and having RBI solely regulate the banking system instead of joint control with the Ministry of Finance. Many of the recommendations were
Narsimham committee report and its impact 2014Akshay Thakur
The document summarizes the key recommendations of the Narasimham Committee reports from 1991 and 1998 on Indian banking sector reforms. The 1991 report recommended reducing CRR and SLR, phasing out directed lending, interest rate deregulation, and restructuring banks. The 1998 report reviewed implementation of 1991 reforms and recommended further strengthening banks through mergers, raising capital adequacy ratios, and increasing bank autonomy. Both reports significantly improved the stability and resilience of India's banking system.
Banking sector reforms and Basel norms 1 & 2NayanaUK
The document discusses banking reforms and Basel norms in India. It provides details on the recommendations of the Narasimhan Committee which led the government to undertake various banking reforms since 1991. This included lowering statutory liquidity and cash reserve ratios, implementing prudential norms, capital adequacy norms, deregulating interest rates, facilitating debt recovery, allowing private sector banks, and giving more operational freedom. It also explains the Basel accords formulated by the Basel Committee on Banking Supervision to establish common international standards for banking regulations and supervision, including Basel I focusing on credit risk and Basel II refining this with three pillars around capital, supervision, and disclosure.
The document provides an overview of banking sector reforms in India. It discusses key recommendations of the Narasimham Committee reports which laid the foundation for banking sector reforms in India, including reducing statutory liquidity ratio and cash reserve ratio, introducing minimum capital adequacy ratios, and adopting uniform accounting practices. The reforms aimed to make the Indian banking system more efficient, competitive, and in line with global standards. It also discusses some challenges in implementing the reforms such as the need to reduce non-performing assets and strengthen weak banks.
Today, the banking industry in our country is stronger and capable of withstanding the pressures of competition. It withstood Global Financial Crisis (2008). In the era of Globalization Banking Sector in India is rapidly changing since 1990s due to technological innovation, financial liberalization with entry of new private and foreign banks, and regulatory changes in the corporate sector. Indian banking industry is gradually moving towards adopting the best practices in accounting, internationally accepted prudential norms, with higher disclosures and transparency, corporate governance and risk management, interest rates have been deregulated, while the rigour of directed lending is being progressively reduced. In our country, currently we are having a fairly well developed banking system with different classes of banks – public sector banks, foreign banks, private sector banks – both old and new generation, regional rural banks and co-operative banks with the Reserve Bank of India as the leader of the system. In the banking field, there has been an unprecedented growth and diversification of banking industry and our banks are now utilizing the latest technologies like internet and mobile devices to carry out transactions and communicate with the masses.
The document discusses the history and evolution of banking sector reforms in India over several decades. It covers key milestones like the Banking Regulation Act of 1949, nationalization of banks in 1969 and 1980, and establishment of committees like Narasimham Committee I and II that led banking reforms in 1991 and 1998 respectively. The reforms focused on aspects like reducing government control, increasing competition and privatization, improving asset quality and regulatory changes to strengthen the banking system in India.
Narasimham committee on banking sector reforms wikipediaSahood123
The document summarizes the recommendations of the Narasimham Committee on Banking Sector Reforms from 1998. It recommended greater autonomy for public sector banks, reforming the role of the Reserve Bank of India to separate its regulatory and ownership functions, and encouraging bank consolidation to create stronger banks that could better support the Indian economy. It also emphasized reducing non-performing assets, tightening capital adequacy norms, and allowing more entry of foreign banks.
Banking sector reforms in india and their impact on the economyRishi Kumar
This document is a dissertation report submitted by Mr. Rishi Kumar to Savitribai Phule Pune University in partial fulfillment of an MBA degree. It examines the banking sector reforms in India and their impact on the economy. The report provides background on the nationalization of banks in India and outlines the key recommendations of the Narasimham Committee reports from 1991 and 1998, which laid the foundation for modernizing and reforming the Indian banking system. It discusses reforms such as reducing statutory reserves, introducing prudential lending norms, and increasing private sector participation and competition in banking.
HDFC Bank Ltd. conducted research on its functional areas and performance. The objectives were to understand functions, evaluate company performance, and measure individual area performance. Data was collected through interviews with managers and executives. The banking sector in India has grown from money lending to modern banking. Recent reforms have improved profits, productivity, and efficiency. Prospects for the banking sector are good due to economic growth, increasing retail loans, and expanded non-interest income sources.
HDFC Bank Ltd. conducted research on its functional areas and performance. The objectives were to understand functions, evaluate industry performance, and measure individual area performance. Primary and secondary data was collected through employee interviews. Department heads and managers were interviewed as a non-probability sample. The history of banking in India dates back to Vedic times, with early indigenous bankers and agency houses. Major developments included the establishment of presidency banks, the Reserve Bank of India, nationalization of banks, and reforms allowing private banks. Banking sector reforms have improved profitability, productivity and efficiency.
Banking sector reforms in India were introduced in 1991 as part of broader economic liberalization. Key recommendations from the 1991 Narasimham Committee report included reducing statutory reserve requirements and introducing transparency measures. Subsequent reforms focused on strengthening the banking system, including increasing capital requirements. The 1998 Narasimham report proposed further regulatory changes. Major reforms since then include financial inclusion programs, new types of banks like payments banks, and growth of digital banking technologies like UPI and ATMs. However, increased technology usage has also raised cybersecurity risks for the Indian banking sector.
Introduction to AI for Nonprofits with Tapp NetworkTechSoup
Dive into the world of AI! Experts Jon Hill and Tareq Monaur will guide you through AI's role in enhancing nonprofit websites and basic marketing strategies, making it easy to understand and apply.
The document discusses the history and reforms of the banking industry in India. It describes the industry's evolution through five phases: evolutionary, foundation, expansion, consolidation, and reformatory. Major reforms since the 1990s included liberalizing interest rates, reducing statutory preemptions like CRR and SLR, increasing competition through private banks and foreign banks, and improving regulation and supervision. The reforms have led to improved access to credit, more independent monetary policymaking, and greater operational freedom for banks.
The document discusses the recommendations of the Narsimham Committee I and II on financial sector reforms in India. Narsimham Committee I recommended reducing SLR and CRR over time to allow banks to lend more productively. It also recommended redefining priority sectors, deregulating interest rates, reducing number of public sector banks, establishing an asset reconstruction fund, and allowing profitable banks to raise capital from markets. Narsimham Committee II focused on strengthening banks, adopting the narrow banking concept for weak banks, raising capital adequacy norms, reviewing bank ownership models, and updating banking laws.
Narsimha committee report on financial reformsPankaj Baid
The Narasimham Committee was formed in 1991 and 1998 to examine aspects of financial system reforms in India. The 1991 committee recommended reducing CRR and SLR, phasing out directed credit, interest rate deregulation, and restructuring banks. The 1998 committee focused on strengthening banks through mergers and raising capital adequacy ratios. Both committees significantly impacted Indian banking sector reforms.
The Narasimham Committee was formed in 1991 and 1998 to reform India's financial system. The 1991 report recommended reducing statutory liquidity and cash reserve ratios, phasing out directed credit programs, deregulating interest rates, restructuring banks, and establishing an asset recovery tribunal. The 1998 report recommended strengthening banks' capital adequacy, narrowing weak banks' scopes, reviewing banking laws, and increasing bank autonomy and privatization. Both reports aimed to modernize and stabilize India's banking system.
Banking originated in India in the late 18th century with the Bank of Hindustan and General Bank of India. The oldest and largest bank still in existence is the State Bank of India, which originated from the Bank of Calcutta in 1806. The three presidency banks of Bengal, Bombay and Madras merged in 1921 to form the Imperial Bank of India, which became the State Bank of India after independence. Banking reforms since the early 1990s have led to increased competition and participation of private banks in India's banking sector.
This document provides an overview of the impact of banking sector reforms in India. It discusses the necessity for reforms in the 1990s due to economic crisis. It outlines the key recommendations of the 1991 and 1998 Narasimhan Committees, which served as the basis for reforms. The reforms focused on reducing reserve requirements, introducing prudential norms, capital adequacy norms, interest rate deregulation, and allowing private sector banks. The impacts of the reforms included improved productivity, profitability and asset quality of banks as well as enhanced customer services and corporate lending. Overall, the reforms helped make the Indian banking sector more robust and competitive.
The document summarizes the key recommendations of the Committee on Banking Sector Reforms in India in the 1990s. The committee recommended a four-tiered banking hierarchy, reduction in statutory reserve ratios over 5 years, increased capital adequacy ratios, better classification of bank assets, and reforms to priority lending, non-performing assets, and increased autonomy and technology for banks. In the second phase, it recommended further consolidation of banks, increased capital ratios, strengthening credit recovery, reducing non-performing assets, and allowing more foreign bank participation.
The document provides an overview of the history and development of banking in India. It discusses the following key points:
1. Banking in India can be broadly classified into commercial banks, cooperative banks, regional rural banks, and foreign banks. The Reserve Bank of India acts as the central bank.
2. The Indian banking system has undergone significant reforms since the early 1990s to increase efficiency and competition. This included reducing reserve requirements, deregulating interest rates, and allowing more private sector and foreign banks.
3. Reforms have helped improve banks' profitability and diversification of services. However, more reforms are still needed to strengthen the system and ensure banks can meet the challenges of globalization.
The document discusses the recommendations of the Narsimham Committee I, which was formed in 1991 to recommend reforms for improving the efficiency and effectiveness of India's financial system and banking sector. The committee recommended several reforms, including reducing statutory pre-emptions like SLR and CRR, introducing interest payments on CRR balances, phasing out directed lending programs, increasing transparency, improving loan recovery processes, deregulating interest rates, restructuring banks, introducing standardized asset classification and provisioning norms, allowing entry of private banks, abolishing branch licensing controls, implementing capital adequacy requirements, standardizing income recognition practices, and having RBI solely regulate the banking system instead of joint control with the Ministry of Finance. Many of the recommendations were
Narsimham committee report and its impact 2014Akshay Thakur
The document summarizes the key recommendations of the Narasimham Committee reports from 1991 and 1998 on Indian banking sector reforms. The 1991 report recommended reducing CRR and SLR, phasing out directed lending, interest rate deregulation, and restructuring banks. The 1998 report reviewed implementation of 1991 reforms and recommended further strengthening banks through mergers, raising capital adequacy ratios, and increasing bank autonomy. Both reports significantly improved the stability and resilience of India's banking system.
Banking sector reforms and Basel norms 1 & 2NayanaUK
The document discusses banking reforms and Basel norms in India. It provides details on the recommendations of the Narasimhan Committee which led the government to undertake various banking reforms since 1991. This included lowering statutory liquidity and cash reserve ratios, implementing prudential norms, capital adequacy norms, deregulating interest rates, facilitating debt recovery, allowing private sector banks, and giving more operational freedom. It also explains the Basel accords formulated by the Basel Committee on Banking Supervision to establish common international standards for banking regulations and supervision, including Basel I focusing on credit risk and Basel II refining this with three pillars around capital, supervision, and disclosure.
The document provides an overview of banking sector reforms in India. It discusses key recommendations of the Narasimham Committee reports which laid the foundation for banking sector reforms in India, including reducing statutory liquidity ratio and cash reserve ratio, introducing minimum capital adequacy ratios, and adopting uniform accounting practices. The reforms aimed to make the Indian banking system more efficient, competitive, and in line with global standards. It also discusses some challenges in implementing the reforms such as the need to reduce non-performing assets and strengthen weak banks.
Today, the banking industry in our country is stronger and capable of withstanding the pressures of competition. It withstood Global Financial Crisis (2008). In the era of Globalization Banking Sector in India is rapidly changing since 1990s due to technological innovation, financial liberalization with entry of new private and foreign banks, and regulatory changes in the corporate sector. Indian banking industry is gradually moving towards adopting the best practices in accounting, internationally accepted prudential norms, with higher disclosures and transparency, corporate governance and risk management, interest rates have been deregulated, while the rigour of directed lending is being progressively reduced. In our country, currently we are having a fairly well developed banking system with different classes of banks – public sector banks, foreign banks, private sector banks – both old and new generation, regional rural banks and co-operative banks with the Reserve Bank of India as the leader of the system. In the banking field, there has been an unprecedented growth and diversification of banking industry and our banks are now utilizing the latest technologies like internet and mobile devices to carry out transactions and communicate with the masses.
The document discusses the history and evolution of banking sector reforms in India over several decades. It covers key milestones like the Banking Regulation Act of 1949, nationalization of banks in 1969 and 1980, and establishment of committees like Narasimham Committee I and II that led banking reforms in 1991 and 1998 respectively. The reforms focused on aspects like reducing government control, increasing competition and privatization, improving asset quality and regulatory changes to strengthen the banking system in India.
Narasimham committee on banking sector reforms wikipediaSahood123
The document summarizes the recommendations of the Narasimham Committee on Banking Sector Reforms from 1998. It recommended greater autonomy for public sector banks, reforming the role of the Reserve Bank of India to separate its regulatory and ownership functions, and encouraging bank consolidation to create stronger banks that could better support the Indian economy. It also emphasized reducing non-performing assets, tightening capital adequacy norms, and allowing more entry of foreign banks.
Banking sector reforms in india and their impact on the economyRishi Kumar
This document is a dissertation report submitted by Mr. Rishi Kumar to Savitribai Phule Pune University in partial fulfillment of an MBA degree. It examines the banking sector reforms in India and their impact on the economy. The report provides background on the nationalization of banks in India and outlines the key recommendations of the Narasimham Committee reports from 1991 and 1998, which laid the foundation for modernizing and reforming the Indian banking system. It discusses reforms such as reducing statutory reserves, introducing prudential lending norms, and increasing private sector participation and competition in banking.
HDFC Bank Ltd. conducted research on its functional areas and performance. The objectives were to understand functions, evaluate company performance, and measure individual area performance. Data was collected through interviews with managers and executives. The banking sector in India has grown from money lending to modern banking. Recent reforms have improved profits, productivity, and efficiency. Prospects for the banking sector are good due to economic growth, increasing retail loans, and expanded non-interest income sources.
HDFC Bank Ltd. conducted research on its functional areas and performance. The objectives were to understand functions, evaluate industry performance, and measure individual area performance. Primary and secondary data was collected through employee interviews. Department heads and managers were interviewed as a non-probability sample. The history of banking in India dates back to Vedic times, with early indigenous bankers and agency houses. Major developments included the establishment of presidency banks, the Reserve Bank of India, nationalization of banks, and reforms allowing private banks. Banking sector reforms have improved profitability, productivity and efficiency.
Banking sector reforms in India were introduced in 1991 as part of broader economic liberalization. Key recommendations from the 1991 Narasimham Committee report included reducing statutory reserve requirements and introducing transparency measures. Subsequent reforms focused on strengthening the banking system, including increasing capital requirements. The 1998 Narasimham report proposed further regulatory changes. Major reforms since then include financial inclusion programs, new types of banks like payments banks, and growth of digital banking technologies like UPI and ATMs. However, increased technology usage has also raised cybersecurity risks for the Indian banking sector.
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banking reforms.pptx
1. Financial sector reforms
• From the 1991 India economic crisis to its status of
third largest economy in the world by 2011, India has
grown significantly in terms of economic development.
• So has its banking sector. During this period,
recognizing the evolving needs of the sector, the
Finance Ministry of Government of India (GOI) set up
various committees with the task of analysing India's
banking sector and recommending legislation and
regulations to make it more effective, competitive and
efficient.
• Two such expert Committees were set up under the
chairmanship of M. Narasimham.
2. Financial sector reforms
• They submitted their recommendations in the 1990s in
reports widely known as the Narasimhan Committee-I
(1991) report and the Narasimhan Committee-II (1998)
Report.
• These recommendations not only helped unleash the
potential of banking in India, they are also recognized as a
factor towards minimizing the impact of global financial
crisis starting in 2007.
• Unlike the socialist-democratic era of the 1960s to 1980s,
India is no longer insulated from the global economy and
yet its banks survived the 2008 financial crisis relatively
unscathed, a feat due in part to these Narasimham
Committees
3. First Narasimhan Committee Report – 1991
• To promote the healthy development of the financial
sector, the Narasimhan committee made
recommendations.
• 1. Establishment of 4 tier hierarchy for banking structure
with 3 to 4 large banks (including SBI) at the top and at
bottom rural banks engaged in agricultural activities.
• 2.The supervisory functions over banks and financial
institutions can be assigned to a quasi-autonomous body
sponsored by RBI.
• 3. A phased reduction in statutory liquidity ratio.
• 4. Phased achievement of 8% capital adequacy ratio.
• 5. Abolition of branch licensing policy.
4. First Narasimhan Committee Report – 1991
• 6. Proper classification of assets and full disclosure of
accounts of banks and financial institutions.
• 7. Deregulation of Interest rates.
• 8. Delegation of direct lending activity of IDBI to a separate
corporate body.
• 9. Competition among financial institutions on participating
approach.
• 10. Setting up Asset Reconstruction fund to take over a
portion of the loan portfolio of banks whose recovery has
become difficult.
5. Banking Reform Measures of Government:
• On the recommendations of Narasimhan Committee, following measures
were undertaken by government since 1991: –
1. Lowering SLR and CRR-
• The high SLR and CRR reduced the profits of the banks. The SLR had been
reduced from 38.5% in 1991 to 18% in 2022. This has left more funds
with banks for allocation to agriculture, industry, trade etc.
• The Cash Reserve Ratio (CRR) is the cash ratio of banks total deposits to
be maintained with RBI. The CRR had been brought down from 15% in
1991 to 4% in 2022. The purpose is to release the funds locked up with
RBI.
2. Prudential Norms –
• Prudential norms have been started by RBI in order to impart
professionalism in commercial banks. The purpose of prudential norms
includes proper disclosure of income, classification of assets and
provision for bad debts so as to ensure that the books of commercial
banks reflect the accurate and correct picture of financial position.
• Prudential norms required banks to make 100% provision for all Non-
performing Assets (NPAs). Funding for this purpose was placed at Rs.
10,000 crores phased over 2 years.
6. Banking Reform Measures of Government:
3. Capital Adequacy Norms (CAN): –
• Capital Adequacy ratio is the ratio of minimum capital to
risk asset ratio. In April 1992 RBI fixed CAN at 8%. By
March 1996, all public sector banks had attained the ratio
of 8%. It was also attained by foreign banks.
7. Banking Reform Measures of Government:
4.Deregulation of Interest Rates
• The Narasimhan Committee advocated that interest rates should be allowed to
be determined by market forces. Since 1992, interest rates have become much
simpler and freer.
• Scheduled Commercial banks have now the freedom to set interest rates on their
deposits subject to minimum floor rates and maximum ceiling rates.
• The interest rate on domestic term deposits has been decontrolled.
• The prime lending rate of SBI and other banks on general advances of over Rs. 2
lakhs has been reduced.
• The rate of Interest on bank loans above Rs. 2 lakhs has been fully decontrolled.
• The interest rates on deposits and advances of all Co-operative banks have been
deregulated subject to a minimum lending rate of 13%.
5. Recovery of Debts
• The Government of India passed the “Recovery of debts due to Banks and
Financial Institutions Act 1993” in order to facilitate and speed up the recovery of
debts due to banks and financial institutions. Six Special Recovery Tribunals have
been set up. An Appellate Tribunal has also been set up in Mumbai.
8. Banking Reform Measures of Government:
6. Competition from New Private Sector Banks
• Banking is open to the private sector.
• New private sector banks have already started functioning.
These new private sector banks are allowed to raise capital
contribution from foreign institutional investors up to 20% and
from NRIs up to 40%. This has led to increased competition.
7. Access To Capital Market
• The Banking Companies (Acquisition and Transfer of
Undertakings) Act was amended to enable the banks to raise
capital through public issues. This is subject to the provision
that the holding of Central Government would not fall below
51% of paid-up-capital. SBI has already raised a substantial
amount of funds through equity and bonds.
9. Banking Reform Measures of Government:
8. Freedom of Operation
• Scheduled Commercial Banks are given freedom to open
new branches and upgrade extension counters, after
attaining capital adequacy ratio and prudential
accounting norms. The banks are also permitted to close
non-viable branches other than in rural areas.
9. Local Area Banks (LABs)
• In 1996, RBI issued guidelines for setting up of Local Area
Banks, and it gave Its approval for setting up of 7 LABs in
private sector. LABs will help in mobilizing rural savings
and in channeling them into investment in local areas.
10. Banking Reform Measures of Government:
• 10. Supervision of Commercial Banks
• The RBI has set up a Board of financial Supervision with
an advisory Council to strengthen the supervision of
banks and financial institutions. In 1993, RBI established a
new department known as Department of Supervision as
an independent unit for supervision of commercial banks.
11. Narasimham Committee Report II – 1998
• In 1998 the government appointed yet another
committee under the chairmanship of Mr Narsimham.
• It is better known as the Banking Sector Committee. It
was told to review the banking reform progress and
design a programme for further strengthening the
financial system of India.
• The committee focused on various areas such as capital
adequacy, bank mergers, bank legislation, etc.
12. Narasimham Committee Report II – 1998
• It submitted its report to the Government in April 1998 with the following
recommendations.
• Strengthening Banks in India : The committee considered the stronger
banking system in the context of the Current Account Convertibility ‘CAC’.
It thought that Indian banks must be capable of handling problems
regarding domestic liquidity and exchange rate management in the light
of CAC. Thus, it recommended the merger of strong banks which will
have ‘multiplier effect’ on the industry.
• Narrow Banking : Those days many public sector banks were facing a
problem of the Non-performing assets (NPAs). Some of them had NPAs
were as high as 20 percent of their assets. Thus for successful
rehabilitation of these banks, it recommended ‘Narrow Banking Concept’
where weak banks will be allowed to place their funds only in the short
term and risk-free assets.
• Capital Adequacy Ratio : In order to improve the inherent strength of the
Indian banking system the committee recommended that the
Government should raise the prescribed capital adequacy norms. This will
further improve their absorption capacity also. Currently, the capital
adequacy ratio for Indian banks is at 9 percent.
13. Narasimham Committee Report II – 1998
• Bank ownership : As it had earlier mentioned the freedom for banks
in its working and bank autonomy, it felt that the government
control over the banks in the form of management and ownership
and bank autonomy does not go hand in hand and thus it
recommended a review of functions of boards and enabled them to
adopt professional corporate strategy.
• Review of banking laws : The committee considered that there was
an urgent need for reviewing and amending main laws governing
Indian Banking Industry like RBI Act, Banking Regulation Act, State
Bank of India Act, Bank Nationalization Act, etc.
• This up gradation will bring them in line with the present needs of
the banking sector in India.
• Apart from these major recommendations, the committee has also
recommended faster computerization, technology up gradation,
training of staff, depoliticizing of banks, professionalism in banking,
reviewing bank recruitment, etc.