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Banking Sector Reforms in India

(A) FIRST PHASE OF BANKING SECTOR REFORMS / NARASIMHAN COMMITTEE REPORT – 1991:-Dear Aspirants
Here is a post which defines banking sector reforms in India. Banking in India has seen many reforms from time to time, with giving the new banking license as a new banking sector reform. here is a small material on Banking sector Reforms in India

To promote healthy development of financial sector, the Narasimhan committee made recommendations.

RECOMMENDATIONS OF NARASIMHAN COMMITTEE :–

Establishment of 4 tier hierarchy for banking structure with 3 to 4 large banks (including SBI) at top and at bottom rural banks engaged in agricultural activities.
The supervisory functions over banks and financial institutions can be assigned to a quasi-autonomous body sponsored by RBI.
Phased reduction in statutory liquidity ratio.
Phased achievement of 8% capital adequacy ratio.
Abolition of branch licensing policy.
Proper classification of assets and full disclosure of accounts of banks and financial institutions.
Deregulation of Interest rates.
Delegation of direct lending activity of IDBI to a separate corporate body.
Competition among financial institutions on participating approach.
Setting up asset Reconstruction fund to take over a portion of loan portfolio of banks whose recovery has become difficult.

Banking Reform Measures Of Government:-

On the recommendations of Narasimhan Committee, following measures were undertaken by government since 1991:-

Lowering SLR and CRR: The high SLR and CRR reduced the profits of the banks. The SLR has been reduced from 38.5% in 1991 to 25% in 1997. This has left more funds with banks for allocation to agriculture, industry, trade etc. The Cash Reserve Ratio (CRR) is the cash ratio of a banks total deposits to be maintained with RBI. The CRR has been brought down from 15% in 1991 to 4.1% in June 2003. The purpose is to release the funds locked up with RBI.