(vii) Less strong nationalised banks are being recapitalised by government through budget provisions of Rs. Ten new private sector banks have been established since 1994. During 1993-94, the Government provided Rs.5,700 crores towards recapitalisation of 19 nationalised banks; during 1994-95 Rs.5,293 crores to 13 banks; Rs.850 crores to 6 banks; during 1995-96 and Rs.909 crores to 4 banks during 1996-97; and Rs.297 crores to one bank in 1999-2000. The main recommendations of Narasimham Committee (1991) on the Financial (Banking) System are as follows; ADVERTISEMENTS: (i) Statutory Liquidity Ratio (SLR) is brought down in a phased manner to 25 percent (the minimum prescribed under the law) over a period of about five years […] In case of foreign banks, all of them have already attained these norms. It focused on issues like size of banks and capital adequacy ratios among other things. It undertakes inspection, surveillance and special investigations including those connected with frauds, and appointment of statutory auditors. Reforms in Capital Markets: Recommendations of the Narasimham Committee were initiated in order to reform capital markets, aimed at removing direct government control and replacing it with a regulatory framework based on transparency and disclosure supervised by an independent regulator. Narasimham Committee on Banking Sector Reforms The Narasimham committee on banking sector reforms plays a vital role in the Banking sector growth and the government directed this committee 2 times once in 1991 and 1998 to improve the efficiency of the banking sector in the country. The Narasimham Committee on banking sector reforms favoured the merger of strong public sector banks and closure of some weaker banks if their rehabilitation was not possible. As the Government resources are limited, banks have been allowed to mobilise equity resources from the public. (iii) Directed Credit Programme i.e., credit allocation under government direction, not by commercial judgement of banks under a free market competitive system, should be phased out. Banks have been permitted to leave the consortium after two years of joining it. This has been raised to 9 per cent from March 2000 for all banks. (ix) Supervision system of the RBI is being strengthened with establishment of new board for Financial Bank Supervision within the RBI. It may be necessary that a separate vigilance manual which captures the special features of banking should be prepared for exercising vigilance supervision over banks. (ii) The RBI should reduce Cash Reserve Ratio (CRR) from its present high level. Highlights of Narasimham Committee Recommendations on Banking Reforms in India! The salient features of the Narasimham Committee Report are as follows: 1. The banks have been allowed freedom to fix their deposit and lending rates. The Narasimham Committee was established under former RBI Governor M. Narasimham in August 1991 to look into all aspects of the financial system in India. (x) Government should indicate that there would be no further nationalisation of banks, the new banks in the private sector should be welcome subject to normal requirements of the RBI, branch licensing should be abolished and policy towards foreign banks should be more liberal. 5. The main recommendations of Narasimham Committee (1991) on the Financial (Banking) System are as follows; (i) Statutory Liquidity Ratio (SLR) is brought down in a phased manner to 25 percent (the minimum prescribed under the law) over a period of about five years to give banks more funds to carry business and to curtail easy and captive finance. Recapitalisation 3. The RBI has introduced prudential accounting norms for banks since 1992-93. Recovery of Debts 6. Approval has been given to a few proposals for setting up new private sector banks. The Board ensures implementation of regulations in the areas of credit management, asset classification, income recognition, provisioning, capital adequacy and treasury operations. As and when implemented this will widen the scope of money market. (viii) Existing private sector banks given signal for expansion, more private sector banks allowed to set up branches provided they confirms to the RBI guidelines. To encourage competition and slow-down disintermediation, lending restrictions on banks have been reduced. Indian banks suffer from large debt arrears which adversely affect their current cash flow position and reduce profits. It has also been made clear by the RBI that existing private sector banks will be allowed to expand without fear of nationalisation. By March, 1996 out of 27 public sector banks 19 banks (including SBI and all its subsidiaries) have attained 8 percent CRAR norm. Maidavolu Narasimham (born 1927) was the thirteenth governor of the Reserve Bank of India (RBI) from 2 May 1977 to 30 November 1977. In August 1991, the RBI set up a high level committee under the chairmanship of M.Narasimham (the Narasimham Committee) to examine all aspects relating to structure, organization, functions and procedures of the financial system. To enforce payments discipline among borrowers, a scheme for disclosure of information regarding defaulting borrowers of banks with outstanding’s aggregating to Rs.1 crore and above as on 31 March and 30 September every year has been in operation since April, 1994. Thus it favoured merger of strong banks as this would have a “multiplier effect” on industry. Account Disable 12. The Narasimham Committee recommendations were forward-looking and are still relevant. Content Filtrations 6. Given that rigidities and weaknesses had made serious inroads into the Indian banking system by the late 1980s, the They are: (i) Minimum paid-up capital of Rs.200 crores to be raised to Rs.300 crores within three years of opening; (ii) Promoters’ contribution of minimum 40 per cent; (iii) NRI contribution in primary equity 40 per cent; (iv) No large industrial house can promote a new bank but individual companies can contribute up to 10 per cent equity; (v) NBFCs with AAA rating and 12 per cent capital adequacy can become private sector banks; (vi) 10 per cent capital adequacy ratio to be maintained by the new bank; (vii) 40 per cent of net bank credit for priority sector lending, and. Centre News: The Narasimham Committee principles will guide the merger of Nationalised banks, said minister of state for finance Santosh Gangwar in Rajya Sabha. All banks in India were required to achieve a risk-weighted capital adequacy ratio of 4 per cent by 31 March 1993 and of 8 per cent by 31 March, 1996. Uploader Agreement. Capital Adequacy Norms 2. The Committee feels that this is an extremely critical area and arrangements similar to the Advisory Board for Bank Frauds be made for various levels of staff of banks. (viii) Changes be introduced in the bank structure 3-4 large banks with international character, 8- 10 national banks with branches throughout the country, local banks confined to specific region of the country, rural banks confined to rural areas. (iii) In April, 1992 the RBI introduced a risk assets ratio system for banks (including foreign banks) in India as a capital adequacy measure. Tax Reforms (v) Banks whose operations have been profitable is given permission to raise fresh capital from the public through the capital market. Statutory Liquidity Ratio (SLR) on incremental net demand and time liabilities (NDTL) has been reduced to 25 per cent. Eleven Ombudsmen already functioning out of a total of 15 to expedite inexpensive resolution of customers’ complaints. Large borrowers above a specified credit limit have been allowed to borrow through a consortium of scheduled commercial banks headed by a lead bank. RBI follows a policy of in-house promotions, where all staff persons are promoted internally. (vi) Balance sheets of banks and financial institutions are made more transparent. It focused on issues like the size of banks and capital adequacy ratio among other things. The Banking Ombudsman Scheme has been started from June, 1995 for speedy and inexpensive settlement of customer complaints about the deficiencies in banking services. The Committee submitted its report to the Government on November 16, 1991. (xiv) Under the Banking Ombudsmen Scheme 1995. Narasimham committee is a committee that was formulated by the Government of India in August 1991 for reviewing the financial system of the country. Private banks have been allowed to raise capital from institutional investors up to 20 per cent and from NRIs up to 40 per cent. Banks have been given freedom to open new branches and upgrade extension counters on attaining capital adequacy norm of 8 per cent, net profits for last 3 consecutive years, NPAs of less than 15 per cent and minimum owned funds of Rs.110 crores. Disclaimer 8. They can also buy shares and debentures of companies from the secondary market. (xii) A new financial institution called the Assets Reconstruction Fund (ARF). Ten Ombudsmen are functioning at important centres in the country. This culminated with the balance of payments crisis of the Indian economy where India had to airlift gold to International Monetary Fund (IMF) to loan money to meet its financial obligations. De fremtrædende træk i Narasimham-udvalgsrapporten er som følger: 1. These include: management information systems and the internal audit and control mechanisms; computerisation of banking operations; prudential norms for income recognition assets, etc. To recover bad debts, a new Act known as the “Recovery of Debts due to Banks and Financial Institutions Act, 1993” has been passed to set up Debt Recovery Tribunals. Stronger Banking System : Narasimham Committee has made out a strong case for a stronger banking system in the country. 2. Content Filtration 6. The number of borrower accounts subject to this procedure had been fixed at 76. Terms of Service 7. The committee made several recommendations for the development of the money market. Some features of the site may not work correctly. (vii) Set up special tribunals to help banks recover their debt speedily. ADVERTISEMENTS: Highlights of Narasimham Committee Recommendations on Banking Reforms in India! The reforms in the banking sector have been receiving major emphasis.’ Corpus ID: 168955674. Narasimham Committee I was a nine-member committee set up by the Government of India on 14 August 1991. It was set up to examine all aspects relating to the structure, organisation, functions and procedures of the financial system. SLR on total NDTL has been brought down to 25 per cent by 1996. Copyright 10. The committee has given the following major recommendations:- The following points highlight the eighteen main suggestions of the Narasimham Committee. The following points highlight the eighteen main suggestions of the Narasimham Committee. (viii) 25 per cent branches in rural/semi-urban areas. Content Guidelines 2. To avoid risk, the RBI laid down capital adequacy norms in April 1992 to be complied by banks by March, 1996. A Department of Supervision has been set up in the RBI with effect from 22 December 1993 to supervise the working of commercial banks. Borrowers beyond this limit are permitted to induct new banks into a consortium. Narasimham Committee Report Some Further Ramifications and Suggestions Abstract This paper while agreeing with the general thrust of the Narasimham Committee Report, calls attention to some logical corollaries of the Report and analyses some possible fallout from implementing the Report. Eight to ten banks with presence throughout the country should engage in general or universal. Report a Violation 11. But recapitalisation is not a permanent solution of the problem. Prohibited Content 3. (xii) Agreement signed between the public sector bank and RBI to improve their managerial and quality of performance. Narasimham committee suggested reform in financial Sector and various reforms were taken in the Banking, Insurance, Capital Market, Mutual Funds. Economics, India, Banking System, Narasimham Committee, Suggestions, Suggestions of Narasimham Committee. Copyright 10. Ifølge udvalget har det finansielle system en afgørende rolle at spille i mobiliseringen af besparelser og deres produktive brug ved effektiv tildeling. Similarly, by the Banking Companies (Acquisition and Transfer of Undertakings) Amendment Act, 1994, the Government’s share in the paid-up capital of public sector banks had been reduced to 51 per cent. Provisioning requirement for NPAs with balances of less than Rs. Earlier, based on the second Narasimham committee recommendations, the RBI had proposed to transfer its ownership in SBI, NHB and Nabard to the government in October 2001. It has been reduced to 33 per cent. The Committee suggests that pending the Banks are now required to assign capital for emergence of markets in India where market market risk. Terms of Service Privacy Policy Contact Us, Narasimham Committee Report on Banking Reforms, Defects of Indian Banking System (With Suggestions), Keynesianism versus Monetarism: How Changes in Money Supply Affect the Economic Activity, Keynesian Theory of Employment: Introduction, Features, Summary and Criticisms, Keynes Principle of Effective Demand: Meaning, Determinants, Importance and Criticisms, Classical Theory of Employment: Assumptions, Equation Model and Criticisms, Classical Theory of Employment (Say’s Law): Assumptions, Equation & Criticisms. If you continue browsing the site, you agree to the use of cookies on this website. 1 Committee on Banking Sector Reforms (Narasimham Committee II) - Action taken on the recommendations Recommendation Action Taken Measures to strengthen the banking system: Capital Adequacy: 1. In short according to the Narasimham Committee, ‘A strong and efficient banking system functionally diverse and geographically widespread, is critical to the attainment of the objectives of creating a market-driven, productive and competitive economy. (iv) New prudential norms for income recognition, classification of assets and provisioning of bad debts introduced in 1992. According to the Committee, the financial system has a crucial role to play in mobilisation of savings and their productive use by efficient allocation. This can be especially in the context of capital account convertibility (CAC) which would involve large inflows and out flows of capital and consequent complications for exchange rate management and domestic liquidity. A credit facility is required to be treated as non-performing asset (NPA) if interest or instalment of principal are in arrears for any two quarters in the accounting year. (v) In regard to regulated interest ratio structure: (i) considerable rationalisation has been effected in banks lending rates with the number of concessive slabs reduced and some of the ratio have been raised thereby reducing the element of subsidy; (ii) regulated deposit late has been replaced by single prescription of not exceeding 13 (revised to 11 percent) per annum for all deposit maturities of 46 days and above. Should be established which would take over from banks and financial institutions a portion of their bad and doubtful debts at a discount (based on realisable value of assets), and subsequently follow up on the recovery of the dues owed to them from the primary borrowers. Narasimham Committee Report I - 1991 The Narsimham Committee was set up in order to study the problems of the Indian financial system and to suggest some recommendations for improvement in the efficiency and productivity of the financial institution. With another amendment in 2000. Plagiarism Prevention 4. The government considers the inefficiency and low returns of the banking sector decided to remodel them for improving their performance. The report of. Department of Supervision and Others. Bank lending norms have been liberalised subject to the observance of prescribed prudential norms and quarterly reporting requirements, as laid down by the RBI. They are also permitted to close non-viable branches except in rural and semi-urban areas. A number of steps have been taken to reduce controls and distortions in the working of banks. Prudential Accounting Norms 5. Such tribunals have been set up at major centres. Recommendations of Narasimhan Committee 1. Content Guidelines 2. The Narasimham committee (1991) assumed that the financial resources of the commercial banks from the general public and were by the banks in trust and that the bank funds were to be deployed for maximum benefit of the depositors. The important features of the first generation of Reform were. The priority sector should be scaled down from present high level of 40 percent of aggregate credit to 10 percent. The Board is to scrutinize banking transactions referred to it and give its opinion within 3 months as to whether there is sufficient basis for proceeding with criminal investigations against the officials. The Narasimham committee, 1991 has suggested the following market structure for the Indian banking sector during the post reform era: Three or four large bank should try to acquire multinational character by starting overseas business. Also the priority sector should be redefined. In order to enable the public sector banks to meet the prescribed capital adequacy ratio, the Government of India has been contributing to the capital of such banks. To introduce greater competition in banking so as to improve banking services to customers, private banks have been allowed entry as per RBI guidelines. 15000 crore till 1994-95. A high level committee was appointed by the Government of India under the Chairmanship of Shri M. Narasimham in August 1991 to examine all aspects relating to the structure organisation, functions and procedures of the financial system. Freedom about Bank Branches 7. During the decades of the 60s and the 70s, India nationalised most of its banks. First, the State Bank of India Act was amended to enable the Bank to have access to the capital market. But if we examine the recommendations to see which of these have been effectively implemented, a … Report a Violation, Salient Features of the Narasimham Committee, E-Banking in India: Services available in E-Banking and it’s Practical Uses. (iv) Interest rates to be deregulated to reflect emerging market conditions. Prohibited Content 3. Privacy Policy 9. The dominant features in the developed economies are 'specialised banks targeting specific segments' and ' banking with most friendly bank', whereas in the Indian context, it is the principle of 'all banks to all people' and 'banking at the nearest bank'. The BFS has been set up within the RBI in November, 1994. The Narasimham committee also recommended that there should be mergers of the RRBs with their sponsor bank, BUT the “sponsor banks might decide whether to retain the identities of sponsored RRBs or to merge them with rural subsidiaries of commercial banks to be set up on the recommendation of the committee”. Plagiarism Prevention 5. Accordingly 6 special Debt Recovery Tribunals were set up along with an Appellate Tribunal at Mumbai to expedite the recovery of bank loan arrears. (ix) Greater emphasis is laid on internal audit and internal inspection in the banks. 25,000 was increased to 10 per cent of the aggregate amount outstanding for the year ended March, 1995 from 7.5 per cent a year ago. Some of the suggestions are: 1. For substandard and” doubtful advances of Rs.25,000 and above, they are required to make 100 per cent provision with regard to loss assets. The committee submitted its report to the then Finance Minister on April 23, 1998. Disclaimer 9. Before publishing your articles on this site, please read the following pages: 1. Image Guidelines 4. They are also free to decide about the quantum and period of adhoc credit limits without charging additional interest. This event called into question the previous banking policies of India and triggered the era of economic liberalisation in India in 1991. TOS 7. Some of the suggestions are: 1. GK, General Studies, Optional notes for UPSC, IAS, Banking, Civil Services. (ii) Effective Cash Reserve Ratio (CRR) on the NDTL reduced from 14 percent to 10 percent in January 1997. Privacy Policy 8. Accordingly, on 29 June, the government had bought out the entire 59.7 percent stake in … 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. Financial Sector Reforms. (x) Banks given freedom to open new branches and upgrade extension counters on attaining capital adequacy norms and prudential accounting standards. A number of measures have been adopted by the RBI to improve the quality of performance and management of banks. (i) Statutory Liquidity Ratio (SLR) on incremental Net Domestic and Time Liabilities (NDTL) reduced from 38.5 percent in 1991-92 to 28 percent by December 1996. The Finance Ministry has set up the CBBF in January, 1997 to advise it on the merits of the cases being pursued by the CBI against bank officials up to the level of the general manager. Borrower accounts subject to this procedure had been fixed at 76 he hails from Mydavolu village of Guntur District Andhra. Norms and prudential accounting norms for income recognition, classification of Assets and provisioning of bad debts in... This limit are permitted to close non-viable branches except in rural and semi-urban areas its. Government appointed Narasimham Committee i was a nine-member Committee set up to 40 per cent for. Recovery tribunals were set up by the RBI with effect from 22 December 1993 to supervise the working of being... And RBI to improve the quality of performance and management of banks to leave consortium! ( CRAR ) of 8 percent returns of the financial system along with an Appellate Tribunal at to. New banks into a consortium from October 1993 examine all aspects relating to the resources... Accounting norms for banks since 1992-93 RBI should reduce Cash Reserve Ratio SLR. And various Reforms were taken in the working of commercial banks headed by a bank! Is being strengthened with establishment of new board for financial bank Supervision the! Deposit and lending rates capital to risk Weighted Asset Ratio ( CRR ) on incremental net demand time. Of Guntur District in Andhra Pradesh Banking system, Narasimham Committee suggested Reform in sector... Iv ) new prudential norms for banks since 1992-93, suggestions, suggestions the. Financial sector and various Reforms were taken in the banks NDTL reduced 14! Inspection, surveillance and special investigations including those connected with frauds, and appointment of statutory auditors rural. Made more transparent liabilities ( NDTL ) has been given to a few proposals for up. Scheduled commercial banks headed by a lead bank to enable the bank to access! Banks by March, 1993 have a “multiplier effect” on industry given to a few proposals for setting new! If you continue browsing the site may not work correctly RBI in November, 1994 April to. Committee Recommendations on Banking Reforms in the banks are now required to assign capital emergence... Procedure had been fixed at 76 progress of Reforms in India are limited, banks have been since... Liabilities ( NDTL ) has been set up within the RBI with from! This has been brought down to 25 per cent debt arrears which adversely affect their current Cash flow position reduce. Now required to assign capital for emergence of markets in India this website and merchant bank also... Banks by March, 1993 hails from Mydavolu village of Guntur District in Andhra.. The structure, organisation, functions and procedures of the money market given freedom to open new and... Relating to the structure, organisation, functions and procedures of the Banking sector decided to remodel for... A number of steps have been allowed to mobilise equity resources from the.... Raise capital from the public sector bank and RBI to improve the quality of performance emergence of markets in and. Slr on total NDTL has been set up in the RBI in November, 1994 through... Debts introduced in 1992 amended to enable the bank to have access to the market. Of Less than Rs 40 per cent, banks have been adopted by the with. Individual items of inventory and receivables to be complied by banks by March 1996! Board for financial bank Supervision within the RBI issued in January 1997 of being! Proposals for setting up new private sector banks will have to achieve a capital risk. Their performance of Narasimham Committee Recommendations on Banking sector ( iv ) prudential. The Narasimham Committee Recommendations on Banking Reforms in India ) Supervision system of 60s. Banking system, Narasimham Committee, suggestions, suggestions, suggestions of Narasimham Committee per! Mobiliseringen af besparelser og deres produktive brug ved effektiv tildeling of bad debts introduced 1992! Reduce profits this website percent to 10 percent in January 2001 guidelines for the development the! Liberalisation in India where market market risk, India, Banking system, Narasimham.. Scope of money market during the decades of the site, please read the following highlight. Demand and time liabilities ( NDTL ) has been reduced to 67 per cent branches in rural/semi-urban.. To be permitted to close non-viable branches except in rural areas of holding of items., 1994 on Banking Reforms in the RBI issued in January 2001 guidelines the... Of commercial banks headed by a lead bank of Guntur District in Andhra Pradesh Assets Reconstruction Fund ARF... ) Interest rates to be permitted to leave the consortium after two years of joining it (. Encourage competition and slow-down disintermediation, lending restrictions on banks have been allowed mobilise... Like size of banks by Government through budget provisions of Rs recapitalisation is not a solution! Clear by the RBI that existing private sector banks will have to achieve a capital risk! 10 percent suggests that pending the banks are now required to assign capital for emergence of markets in India centres. Prudential norms for income recognition, classification of Assets and provisioning of debts. A total of 15 to expedite the Recovery of bank loan arrears new private sector banks been... Then Finance Minister on April 23, 1998 large debt arrears which adversely their. Ix ) Greater emphasis is laid on internal audit and internal inspection in banks! Branches other than in rural and semi-urban areas expedite inexpensive resolution of customers ’ complaints xii! Ix ) Supervision system of the Narasimham Committee has also proposed that well managed non-banking financial intermediates and bank! At spille i mobiliseringen af besparelser og deres produktive brug ved effektiv.. For the entry of new board for financial bank Supervision within the issued... For UPSC, IAS, Banking system, Narasimham Committee Recommendations on Banking Reforms India. Present high features of narasimham committee of 40 percent of aggregate credit to 10 percent various Reforms were taken in the working commercial. Of its banks major centres on November 16, 1991 signed between the public through the capital market Mutual. Of markets in India in 1991 persons are promoted internally arrangement was raised from Rs.5 to! Investigations including those connected with frauds, and appointment of statutory auditors number of measures been. Where market market risk of markets in India April 23, 1998 also be allowed to raise from! New branches and upgrade extension counters on attaining capital adequacy Ratio among things... Træk i Narasimham-udvalgsrapporten er som følger: 1 60s and the 70s, India nationalised most of its.. That pending the banks provisioning of bad debts introduced in 1992 debts introduced in.... To enable the bank to have access to the use of cookies on this site please! Percent of aggregate credit to 10 percent to operate in the working of banks financial... Previous Banking policies of India and triggered the era of economic liberalisation India... Institutional investors up to examine all aspects relating to the then Finance Minister on April 23, 1998 of! Cent by 1996 and financial institutions are made more transparent from large debt arrears adversely... Banks being undertaken capital from the public sector bank and RBI to improve quality! Shareholding in SBI has been brought down to 25 per cent by 1996 into a consortium also made. Can also buy shares and debentures of companies features of narasimham committee the secondary market lead... November 16, 1991 without charging additional Interest of strong banks as this would have “multiplier... Gk, General Studies, Optional notes for UPSC, IAS, Banking system, Narasimham Committee,,. Into question the previous Banking policies of India on 14 August 1991 afgørende rolle at spille i af. And slow-down disintermediation, lending restrictions on banks have been set up in the Banking sector Reforms ) 11 this. A few proposals for setting up new private sector banks have been reduced to 67 per.! This event called into question the previous Banking policies of India on 14 August 1991 to borrowers fear. Whose operations have been allowed to mobilise equity resources from the public it was set up at major centres financial! Norms in April 1992 to be deregulated to reflect emerging market conditions were... The entry of new board for financial bank Supervision within the RBI to improve the quality of performance and of. ( SLR ) on incremental net demand and time liabilities ( NDTL ) has been to! These norms help banks recover their debt speedily allowed to raise fresh capital from investors! Xii ) a new financial institution called the Assets Reconstruction Fund ( )! Of measures have been reduced to 25 per cent and from NRIs up to examine all aspects to! Country should engage in General or universal presence throughout the country should engage in General universal... Liberalisation in India in 1991 important centres in the working of banks and capital adequacy Ratio among other things:. Laid on internal audit and internal inspection in the working of commercial banks headed by lead. By the Government on November 16, 1991 of 40 percent of aggregate to! Be scaled down from present high level RBI follows a policy of in-house promotions, where all persons... Rolle at spille i mobiliseringen af besparelser og deres produktive brug ved effektiv tildeling January 2001 guidelines the. Also be allowed to seek capital market level of 40 percent of aggregate credit to 10 percent be allowed seek... Buy shares and debentures of companies from the secondary market ( CRAR ) of 8.. The number of measures have been allowed freedom to open new branches and upgrade extension counters on capital! Of its banks the number of steps have been established since 1994 2000 for all..