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Recommendations of Narasimhan Committee 1. 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. (xi) Quality of control over the banking system by the RBI and the Banking Division or the Ministry of Finance should be ended and the RBI should be made primary agency for regulation of banking system. A Department of Supervision has been set up in the RBI with effect from 22 December 1993 to supervise the working of commercial banks. Partial Privatisation of Public Sector Banks 4. Department of Supervision and Others. Plagiarism Prevention 4. (xii) Agreement signed between the public sector bank and RBI to improve their managerial and quality of performance. A number of measures have been adopted by the RBI to improve the quality of performance and management of banks. Tax Reforms 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. (viii) 25 per cent branches in rural/semi-urban areas. This has been raised to 9 per cent from March 2000 for all banks. NARASIMHAM COMMITTEE II –1998 (COMMITTEE ON BANKING SECTOR REFORMS) 11. A number of steps have been taken to reduce controls and distortions in the working of banks. 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. 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. (ii) The RBI should reduce Cash Reserve Ratio (CRR) from its present high level. If you continue browsing the site, you agree to the use of cookies on this website. Image Guidelines 5. 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. The reforms in the banking sector have been receiving major emphasis.’ All banks have been allowed to enter insurance business subject to having a minimum net worth of Rs.500 crores and satisfying other criteria in regard to capital adequacy, profitability, etc. Eleven Ombudsmen already functioning out of a total of 15 to expedite inexpensive resolution of customers’ complaints. TOS 7. Freedom about Bank Branches 7. The Banking Ombudsman Scheme has been started from June, 1995 for speedy and inexpensive settlement of customer complaints about the deficiencies in banking services. (x) Banks given freedom to open new branches and upgrade extension counters on attaining capital adequacy norms and prudential accounting standards. Copyright 10. 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 […] (vii) Less strong nationalised banks are being recapitalised by government through budget provisions of Rs. GK, General Studies, Optional notes for UPSC, IAS, Banking, Civil Services. 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. Ten Ombudsmen are functioning at important centres in the country. They are also permitted to close non-viable branches except in rural and semi-urban areas. Such tribunals have been set up at major centres. First, the State Bank of India Act was amended to enable the Bank to have access to the capital market. The banks have been allowed freedom to fix their deposit and lending rates. 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. Copyright 10. Capital Adequacy Norms 2. (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. Recovery of Debts 6. Accordingly 6 special Debt Recovery Tribunals were set up along with an Appellate Tribunal at Mumbai to expedite the recovery of bank loan arrears. But if we examine the recommendations to see which of these have been effectively implemented, a … (iv) New prudential norms for income recognition, classification of assets and provisioning of bad debts introduced in 1992. Given that rigidities and weaknesses had made serious inroads into the Indian banking system by the late 1980s, the 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. Corpus ID: 168955674. (iv) Interest rates to be deregulated to reflect emerging market conditions. (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. To encourage competition and slow-down disintermediation, lending restrictions on banks have been reduced. 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. 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. 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. 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”. The number of borrower accounts subject to this procedure had been fixed at 76. Accordingly, on 29 June, the government had bought out the entire 59.7 percent stake in … 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. Maidavolu Narasimham (born 1927) was the thirteenth governor of the Reserve Bank of India (RBI) from 2 May 1977 to 30 November 1977. The important features of the first generation of Reform were. The Committee was tasked with the progress review of the implementation of the banking reforms since 1992 with the aim of further strengthening the financial institutions of India. (xii) A new financial institution called the Assets Reconstruction Fund (ARF). 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. (vi) Balance sheets of banks and financial institutions are made more transparent. As and when implemented this will widen the scope of money market. Privacy Policy 8. But recapitalisation is not a permanent solution of the problem. The RBI issued in January 2001 guidelines for the entry of new private sector banks other than 10 previous banks. During the decades of the 60s and the 70s, India nationalised most of its banks. These include: management information systems and the internal audit and control mechanisms; computerisation of banking operations; prudential norms for income recognition assets, etc. Large borrowers above a specified credit limit have been allowed to borrow through a consortium of scheduled commercial banks headed by a lead bank. (ix) Supervision system of the RBI is being strengthened with establishment of new board for Financial Bank Supervision within the RBI. 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. Content Filtrations 6. Government appointed Narasimham committee to review the progress of reforms in the banking sector. Account Disable 12. Some of the suggestions are: 1. It has been reduced to 33 per cent. (xi) Rapid computerization of banks being undertaken. Prohibited Content 3. It was set up to examine all aspects relating to the structure, organisation, functions and procedures of the financial system. 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. The Narasimham Committee recommendations were forward-looking and are still relevant. RBI follows a policy of in-house promotions, where all staff persons are promoted internally. (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. 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. They can also buy shares and debentures of companies from the secondary market. The Narasimham-II Committee was tasked with the progress review of the implementation of the banking reforms since 1992 with the aim of further strengthening the financial institutions of India. He hails from Mydavolu village of Guntur District in Andhra Pradesh. By March, 1996 out of 27 public sector banks 19 banks (including SBI and all its subsidiaries) have attained 8 percent CRAR norm. Indian banks suffer from large debt arrears which adversely affect their current cash flow position and reduce profits. The committee submitted its report to the then Finance Minister on April 23, 1998. It focused on issues like size of banks and capital adequacy ratios among other things. Also the priority sector should be redefined. It undertakes inspection, surveillance and special investigations including those connected with frauds, and appointment of statutory auditors. Content Guidelines 2. It focused on issues like the size of banks and capital adequacy ratio among other things. 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. (vi) The SBI and some other nationalised banks have been allowed to seek capital market access. Foreign banks operating in India and Indian banks with branches abroad were to attain 8 percent by March, 1993. Privacy Policy 9. (ix) Greater emphasis is laid on internal audit and internal inspection in the banks. Centre News: The Narasimham Committee principles will guide the merger of Nationalised banks, said minister of state for finance Santosh Gangwar in Rajya Sabha. Narasimham committee is a committee that was formulated by the Government of India in August 1991 for reviewing the financial system of the country. Recapitalisation 3. Private banks have been allowed to raise capital from institutional investors up to 20 per cent and from NRIs up to 40 per cent. Report a Violation, Salient Features of the Narasimham Committee, E-Banking in India: Services available in E-Banking and it’s Practical Uses. The committee made several recommendations for the development of the money market. 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. Narasimham Committee Presented by: ASHUTOSH A. ANAY V. KUSHANG T. ARCHANA T. Slideshare uses cookies to improve functionality and performance, and to provide you with relevant advertising. 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. The following points highlight the eighteen main suggestions of the Narasimham Committee. Narasimham committee suggested reform in financial Sector and various reforms were taken in the Banking, Insurance, Capital Market, Mutual Funds. With another amendment in 2000. Content Filtration 6. Eight to ten banks with presence throughout the country should engage in general or universal. According to the Committee, the financial system has a crucial role to play in mobilisation of savings and their productive use by efficient allocation. (ii) Effective Cash Reserve Ratio (CRR) on the NDTL reduced from 14 percent to 10 percent in January 1997. They are permitted to close non-viable branches other than in rural areas. 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. 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. They are also free to decide about the quantum and period of adhoc credit limits without charging additional interest. 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. The Board ensures implementation of regulations in the areas of credit management, asset classification, income recognition, provisioning, capital adequacy and treasury operations. Permission to Foreign Institutional Investors (FII): Ten new private sector banks have been established since 1994. Before publishing your articles on this site, please read the following pages: 1. Prudential Accounting Norms 5. The BFS has been set up within the RBI in November, 1994. They can invest in corporate shares, debentures and units of mutual funds, not exceeding 5 per cent of their outstanding advances effective March 2001. SLR on total NDTL has been brought down to 25 per cent by 1996. The RBI has introduced prudential accounting norms for banks since 1992-93. 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. (v) Banks whose operations have been profitable is given permission to raise fresh capital from the public through the capital market. As the Government resources are limited, banks have been allowed to mobilise equity resources from the public. To introduce greater competition in banking so as to improve banking services to customers, private banks have been allowed entry as per RBI guidelines. Plagiarism Prevention 5. To avoid risk, the RBI laid down capital adequacy norms in April 1992 to be complied by banks by March, 1996. 5. ADVERTISEMENTS: Highlights of Narasimham Committee Recommendations on Banking Reforms in India! Report a Violation 11. (xiii) Recovery of debts due to banks and the Financial Institution Act 1993 recently passed to facilitate quicker recovery of loans and arrears. Stronger Banking System : Narasimham Committee has made out a strong case for a stronger banking system in the country. 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. The salient features of the Narasimham Committee Report are as follows: 1. The RBI shareholding in SBI has been reduced to 67 per cent. Their debt speedily persons are promoted internally freedom to fix their deposit and lending rates a nine-member Committee up! Liquidity Ratio ( CRR ) from its present high level and low returns of money. Private sector banks other than 10 previous banks the money market promoted.... The previous Banking policies of India Act was amended to enable the bank to have access to the capital.. At important centres in the Banking sector decided to remodel them for improving their performance the... Ii –1998 ( Committee on Banking Reforms in India in 1991 established since 1994 of items... 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