Narasimham committee

Team members: Alankrita Shekhar Gayatri Pattnaik

Ritika Adhikari

Agenda
Introduction Narasimham Committee 1991 Narasimham Committee 1998

Conclusion

Introduction to Financial Reforms

The role of the financial system in India, until the early 1990s, was

primarily restricted to the function of channeling resources from the surplus to deficit sectors.
The banking sector suffered from lack of competition, low capital

base, low productivity and high intermediation cost.

The principal objective of financial sector reforms was to
improve the allocative efficiency of resources and accelerate the growth process of the real sector by removing structural

deficiencies affecting the performance of financial institutions and financial markets.

Major Recommending Committees In Financial Reform

Chakravarty Committee (1985)

Vaghul Committee (1987)

Narasimham Committee (1991) Narasimham Committee (1998) Verma Committee (1999)

Introduction to Narasimham Committee

Reforms in the commercial banking sector had two distinct

phases.
The first

phase of reforms, introduced subsequent to the release of the Report of the Committee on Financial System, 1992 (Chairman: Shri M. Narasimham), focused mainly on enabling and strengthening measures. second phase of reforms, introduced subsequent to the recommendations of the Committee on Banking Sector Reforms, 1998 (Chairman: Shri M. Narasimham) placed greater emphasis on structural measures and improvement in standards of disclosure and levels of transparency in order to align the Indian standards with international best practices.

The

The Committee was first set up in 1991 under the chairmanship of

Mr. M.Narasimham who was 13th governor of RBI.

Agenda
Introduction Narasimham Committee 1991 Narasimham Committee 1998

Conclusion

Narasimham Committee report 1 - year 1991

Reduction in the CRR and SLR

Elimination of government control on interest rate determination

Structural Reorganization of the Banking sector Establishment of the ARF tribunal Removal of Dual Control

Stopping the Directed Credit Programme

Banking Autonomy of PSUs

Banking reform measures of government

Lowering SLR And CRR

Deregulation Of Interest Rates

Recovery Of Debts Competition From New Private Sector Banks Phasing Out Of Directed Credit

Freedom Of Operation
Supervision Of Commercial Banks

Agenda
Introduction Narasimham Committee 1991 Narasimham Committee 1998

Conclusion

Narasimham Committee report 2 - year 1998

Strengthening the Banks in India

Capital Adequacy ratio

Autonomy in Banking Review of the Banking Laws In addition to these recommendations the committee also

recommended faster computerization, upgrade of technology, training of staff, depoliticizing of banks, professionalism in banking etc.

Important Recommendations
RECOMMENDATION Increased CAR requirements; should include market risks in addition to the credit risks In the next three years the entire portfolio of government securities should be marked to market; government and other approved securities should have a 5 per cent weight instead of zero risk weight for market risk. Foreign exchange open credit limit risks to be integrated into the calculation of risk weighted assets; carry a 100 per cent risk weight PRESENT STATUS Already implemented

More stringent norms under Basel II already implemented

More stringent norms under Basel II already implemented

Important recommendations
RECOMMENDATION With the conversion of activities between banks and DFIs, the DFIs should, over a period of time convert themselves to bank. Independent loan review mechanism especially for large borrowal accounts and systems to identify potential NPAs. Banks may stipulate in-house prudential limits PRESENT STATUS ICICI Ltd. merged with ICICI Bank Ltd. IDBI too has followed the same. The major banks have already implemented these exposure limits.

Develop information and control system in several areas like better tracking of spreads, costs for higher profitability, accurate and timely information

Risk Management, Asset Liability Management and improvement in treasury have already been introduced in banks.
NPA norms have been implemented

An asset be classified as doubtful if it is in the substandard category for 18 months in the first instance and eventually for 12 months and loss if it has been identified but not written off

Important recommendations
RECOMMENDATION Reform of the deposit insurance scheme based on CAMELs ratings awarded by RBI to banks. Public Sector Banks in a position to access the capital market at home PRESENT STATUS This has been accepted for implementation. PNB, Canara Bank, UCO Bank, Union Bank etc. have already successfully launched IPOs

Income stops accruing when interest or installment of principal is not paid within 180 days, which should be reduced to 90 days in a phased manner by 2002.
Introduction of a general provision of 1 per cent on standard assets in a phased manner be considered by RBI

Implemented w.e.f. year ending 31/03/2004.

Already implemented

Critical reforms yet to be implemented

The minimum share of holding by Government/Reserve Bank in

the equity of the nationalised banks and the State Bank should be brought down to 33%.
Mergers of large Public Sector Banks of equivalent size should

emanate from the management of the banks with the Government as the common shareholder playing a supportive role.

Agenda
Introduction Narasimham Committee 1991 Narasimham Committee 1998

Conclusion

Conclusion
Recommendations were well received in all quarters(except

employee unions of banks), including the Planning commission of India

During the 2008 economic crisis of major economies worldwide,

performance of Indian banking sector was far better than their international counterparts.
This was also credited to the successful implementation of the

recommendations of the Narasimham Committee-II

The impact of the two committees has been so significant that

elite politicians and financial sectors professionals have been discussing these reports for more than a decade since their first submission applauding their positive contribution.

Thank you