Capital Adequacy Norms 2.Recapitalisation 3.Partial Privatisation of Public Sector Banks 4.Prudential Accounting Norms 5.Recovery of Debts 6.Freedom about Bank Branches 7.Entry of Private Sector Banks 8.Department of Supervision and Others. It focused on issues like the size of banks and capital adequacy ratio among other things. A Department of Supervision has been set up in the RBI with effect from 22 December 1993 to supervise the working of commercial banks. Indian banks suffer from large debt arrears which adversely affect their current cash flow position and reduce profits. A number of steps have been taken to reduce controls and distortions in the working of banks. Content Filtrations 6. Banks have been permitted to leave the consortium after two years of joining it. The following points highlight the eighteen main suggestions of the Narasimham Committee. Prohibited Content 3. The RBI shareholding in SBI has been reduced to 67 per cent. They are permitted to close non-viable branches other than in 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. To encourage competition and slow-down disintermediation, lending restrictions on banks have been reduced. Before publishing your articles on this site, please read the following pages: 1. Content Guidelines 2. (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. (iv) Interest rates to be deregulated to reflect emerging market conditions. Statutory Liquidity Ratio (SLR) on incremental net demand and time liabilities (NDTL) has been reduced to 25 per cent. 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. 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. Ifølge udvalget har det finansielle system en afgørende rolle at spille i mobiliseringen af besparelser og deres produktive brug ved effektiv tildeling. Highlights of Narasimham Committee Recommendations on Banking Reforms in India! The committee has given the following major recommendations:- A number of measures have been adopted by the RBI to improve the quality of performance and management of banks. Copyright 10. Image Guidelines 5. Government appointed Narasimham committee to review the progress of reforms in the banking sector. Privacy Policy 8. Thus it favoured merger of strong banks as this would have a “multiplier effect” on industry. It was set up to examine all aspects relating to the structure, organisation, functions and procedures of the financial system. As and when implemented this will widen the scope of money market. 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. Terms of Service 7. 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. 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. Account Disable 12. Recovery of Debts 6. During the decades of the 60s and the 70s, India nationalised most of its banks. The RBI issued in January 2001 guidelines for the entry of new private sector banks other than 10 previous banks. The Narasimham Committee on banking reforms has recommended the merger of strong public sector banks, selective closure of weak ones, separation of the regulatory and supervisory powers now vested with the Reserve Bank and an increase in capital adequacy levels. Stronger Banking System : Narasimham Committee has made out a strong case for a stronger banking system in the country. (ix) Supervision system of the RBI is being strengthened with establishment of new board for Financial Bank Supervision within the RBI. Economics, India, Banking System, Narasimham Committee, Suggestions, Suggestions of Narasimham Committee. The government considers the inefficiency and low returns of the banking sector decided to remodel them for improving their performance. He hails from Mydavolu village of Guntur District in Andhra Pradesh. The Banking Ombudsman Scheme has been started from June, 1995 for speedy and inexpensive settlement of customer complaints about the deficiencies in banking services. Ten new private sector banks have been established since 1994. Prudential Accounting Norms 5. Financial Sector Reforms. The salient features of the Narasimham Committee Report are as follows: 1. 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. 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. Eleven Ombudsmen already functioning out of a total of 15 to expedite inexpensive resolution of customers’ complaints. The report of. Permission to Foreign Institutional Investors (FII): The Committee suggests that pending the Banks are now required to assign capital for emergence of markets in India where market market risk. This event called into question the previous banking policies of India and triggered the era of economic liberalisation in India in 1991. To introduce greater competition in banking so as to improve banking services to customers, private banks have been allowed entry as per RBI guidelines. 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. 5. 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. It has also been made clear by the RBI that existing private sector banks will be allowed to expand without fear of nationalisation. Accordingly 6 special Debt Recovery Tribunals were set up along with an Appellate Tribunal at Mumbai to expedite the recovery of bank loan arrears. Tax Reforms This has been raised to 9 per cent from March 2000 for all banks. 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. 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. 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. 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. They are also free to decide about the quantum and period of adhoc credit limits without charging additional interest. Provisioning requirement for NPAs with balances of less than Rs. Plagiarism Prevention 5. (xii) A new financial institution called the Assets Reconstruction Fund (ARF). 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. Under this banks will have to achieve a Capital to Risk Weighted Asset ratio (CRAR) of 8 percent. (xi) Rapid computerization of banks being undertaken. 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. 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-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. SLR on total NDTL has been brought down to 25 per cent by 1996. Approval has been given to a few proposals for setting up new private sector banks. 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. Image Guidelines 4. (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. Content Filtration 6. Narasimham Committee I was a nine-member committee set up by the Government of India on 14 August 1991. 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. (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. It undertakes inspection, surveillance and special investigations including those connected with frauds, and appointment of statutory auditors. (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. Maidavolu Narasimham (born 1927) was the thirteenth governor of the Reserve Bank of India (RBI) from 2 May 1977 to 30 November 1977. Bank lending norms have been liberalised subject to the observance of prescribed prudential norms and quarterly reporting requirements, as laid down by the RBI. The RBI has introduced prudential accounting norms for banks since 1992-93. Some of the suggestions are: 1. RBI follows a policy of in-house promotions, where all staff persons are promoted internally. Centre News: The Narasimham Committee principles will guide the merger of Nationalised banks, said minister of state for finance Santosh Gangwar in Rajya Sabha. Partial Privatisation of Public Sector Banks 4. 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 Committee submitted its report to the Government on November 16, 1991. (xiv) Under the Banking Ombudsmen Scheme 1995. Also the priority sector should be redefined. (vi) Balance sheets of banks and financial institutions are made more transparent. Disclaimer 8. (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. It focused on issues like size of banks and capital adequacy ratios among other things. Entry of Private Sector Banks 8. Corpus ID: 168955674. Narasimham committee suggested reform in financial Sector and various reforms were taken in the Banking, Insurance, Capital Market, Mutual Funds. But if we examine the recommendations to see which of these have been effectively implemented, a … Copyright 10. Foreign banks operating in India and Indian banks with branches abroad were to attain 8 percent by March, 1993. GK, General Studies, Optional notes for UPSC, IAS, Banking, Civil Services. As the Government resources are limited, banks have been allowed to mobilise equity resources from the public. TOS 7. Ten Ombudsmen are functioning at important centres in the country. (ii) Effective Cash Reserve Ratio (CRR) on the NDTL reduced from 14 percent to 10 percent in January 1997. Content Guidelines 2. (ii) The RBI should reduce Cash Reserve Ratio (CRR) from its present high level. 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'. (vii) Set up special tribunals to help banks recover their debt speedily. The following points highlight the eighteen main suggestions of the Narasimham Committee. The committee submitted its report to the then Finance Minister on April 23, 1998. Freedom about Bank Branches 7. 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. (vi) The SBI and some other nationalised banks have been allowed to seek capital market access. 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 banks have been allowed freedom to fix their deposit and lending rates. Before uploading and sharing your knowledge on this site, please read the following pages: 1. Report a Violation 11. Borrowers beyond this limit are permitted to induct new banks into a consortium. 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. 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. Disclaimer 9. (viii) 25 per cent branches in rural/semi-urban areas. 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. Privacy Policy 9. The Board ensures implementation of regulations in the areas of credit management, asset classification, income recognition, provisioning, capital adequacy and treasury operations. By March, 1996 out of 27 public sector banks 19 banks (including SBI and all its subsidiaries) have attained 8 percent CRAR norm. 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. They can invest in corporate shares, debentures and units of mutual funds, not exceeding 5 per cent of their outstanding advances effective March 2001. (ix) Greater emphasis is laid on internal audit and internal inspection in the banks. They can also buy shares and debentures of companies from the secondary market. (vii) Less strong nationalised banks are being recapitalised by government through budget provisions of Rs. Some of the suggestions are: 1. Narasimham committee is a committee that was formulated by the Government of India in August 1991 for reviewing the financial system of the country. 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 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”. (v) Banks whose operations have been profitable is given permission to raise fresh capital from the public through the capital market. 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. Accordingly, on 29 June, the government had bought out the entire 59.7 percent stake in … Prohibited Content 3. To avoid risk, the RBI laid down capital adequacy norms in April 1992 to be complied by banks by March, 1996. Narasimham Committee has also proposed that well managed non-banking financial intermediates and merchant bank should also be allowed to operate in the money market. 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. But recapitalisation is not a permanent solution of the problem. They are also permitted to close non-viable branches except in rural and semi-urban areas. 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 […] 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. 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. 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. Department of Supervision and Others. It has been reduced to 33 per cent. 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. The BFS has been set up within the RBI in November, 1994. (iv) New prudential norms for income recognition, classification of assets and provisioning of bad debts introduced in 1992. 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. (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. (xiii) Recovery of debts due to banks and the Financial Institution Act 1993 recently passed to facilitate quicker recovery of loans and arrears. ADVERTISEMENTS: Highlights of Narasimham Committee Recommendations on Banking Reforms in India! Recapitalisation 3. These include: management information systems and the internal audit and control mechanisms; computerisation of banking operations; prudential norms for income recognition assets, etc. The committee made several recommendations for the development of the money market. The reforms in the banking sector have been receiving major emphasis.’ Capital Adequacy Norms 2. Private banks have been allowed to raise capital from institutional investors up to 20 per cent and from NRIs up to 40 per cent. 15000 crore till 1994-95. With another amendment in 2000. Given that rigidities and weaknesses had made serious inroads into the Indian banking system by the late 1980s, the Large borrowers above a specified credit limit have been allowed to borrow through a consortium of scheduled commercial banks headed by a lead bank. Recommendations of Narasimhan Committee 1. Plagiarism Prevention 4. If you continue browsing the site, you agree to the use of cookies on this website. Uploader Agreement. Eight to ten banks with presence throughout the country should engage in general or universal. NARASIMHAM COMMITTEE II –1998 (COMMITTEE ON BANKING SECTOR REFORMS) 11. Some features of the site may not work correctly. Report a Violation, Salient Features of the Narasimham Committee, E-Banking in India: Services available in E-Banking and it’s Practical Uses. 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. 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. The number of borrower accounts subject to this procedure had been fixed at 76. 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. 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. (x) Banks given freedom to open new branches and upgrade extension counters on attaining capital adequacy norms and prudential accounting standards. Such tribunals have been set up at major centres. In case of foreign banks, all of them have already attained these norms. (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. (xv) Ten new private banks have started functioning out of the thirteen “in principle” approvals given for setting up new banks in private sector. First, the State Bank of India Act was amended to enable the Bank to have access to the capital market. De fremtrædende træk i Narasimham-udvalgsrapporten er som følger: 1. 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. The Narasimham Committee recommendations were forward-looking and are still relevant. They are free to decide levels of holding of individual items of inventory and receivables to be permitted to borrowers. 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