Narasimham

Committee II
(1998)
 The Second Narasimham committee was set up
by P. Chidambaram as finance minister of
India in December,1997.
 It is also known as the committee on banking
sector reforms.
 The committee submitted the report to the then
finance minister of India, Yashwant Sinha, on
23rd April, 1998.
  Since 1992 various reform measures have been
initiated for:
i. a strong, efficient, functionally diverse and
geographically widespread financial system.
ii. reforms in banking sector.
iii. changes in accounting practices.

 The report observes that a strong and efficient

financial system is necessary to strengthen the
domestic economy and to meet the challenges posed
by financial globalisation.
 E ND AT ION S
RE CO M M
 Improving the quality assets and
loan portfolio.
 Further reduce the high level of
NPAs.
 Enhancement of capital funds.
 Improve profitability levels.
 The structure of banking system.
 Technological upgradation.
 Professional competence.
 Greater operational flexibility.
 A high degree of professionalism.
 An appropriate legal framework.
 N TAT I O N S
IM PLE ME
 A. Banking Reforms
i. Deregulation of entry of new private sector banks.
ii. Deregulation and simplification of interest rates.
iii. Reducing CRR and SLR.
iv. Introduction of capital adequacy norm of 8% and setting up of Board for
Financial supervision.
v. Liberalization of branch licensing policy.
vi. Introduction of the Banking Ombudsman scheme.
vii. Permission to public sector banks to raise capital upto 49% from the public.
viii. Minimum lock in period of term deposits reduced from 30 to 15 days.
ix. Revision of the whole format of profit and loss account and balance sheet
to ensure greater transparency and disclosure.
x. Putting up of two supervisory rating models based on CAMELS (for Indian
Commercial banks) and CACS (for foreign banks operating in India).
xi. Increase in the scope of Priority Sector credit.
xii. Setting up of 9 Recovery Tribunals covering 22 states and 4 Union
Territories.
 B. Money Market Reforms
i. Introducing 364 days and 91 days Treasury
bills on an auction basis without any support
from RBI.
ii. IDBI, ICICI and SBI have introduced floating
rate instruments linked to 91 day and 364 day
Treasury bills.
 C. Capital Market Reforms
i. In case of Government securities market, RBI
has introduced Delivery Verses Payment
(DVP) system.
ii. In case of Bond and Equity markets, the CCI
was abolished and SEBI was set up.
 D. Other Reforms
i. Stock market reforms included book building
process, ownership record, modernising stock
exchanges with electronic trading system, ceiling
on forward transactions and collection of daily
margins.
ii. External sector reforms were initiated to make
process of globalisation faster and to create
international financial links. These mainly
included flexible exchange rates, access to
international capital markets, rupee
convertibility, promoting foreign investment in
India, promoting investment from NRIs and FIIs.
Thank You