Narasimham Commission Written Report 1991 1998 - Recommendations

Problems Identified By The Narasimham Committee

1. Directed Investment Programme : The commission objected to the scheme of maintaining high liquid assets past times commercial banks inwards the shape of cash, gilded as well as unencumbered authorities securities. It is equally good known equally the statutory liquidity Ratio (SLR). In those days, inwards India, the SLR was equally high equally 38.5 percent. According to the M. Narasimham's Committee it was i of the reasons for the pathetic profitability of banks. Similarly, the Cash Reserve Ratio- (CRR) was equally high equally xv percent. Taken together, banks needed to keep 53.5 per centum of their resources idle alongside the RBI.
2. Directed Credit Programme : Since nationalization the authorities has encouraged the lending to agriculture as well as small-scale industries at a confessional charge per unit of measurement of interest. It is known equally the directed credit programme. The commission opined that these sectors receive got matured as well as thus create non require such fiscal support. This directed credit programme was successful from the government's request of sentiment simply it affected commercial banks inwards a bad manner. Basically it deteriorated the character of loan, resulted inwards a shift from the safety oriented loan to purpose oriented. Banks were given a huge target of priority sector lending, etc. ultimately leading to net turn a profit erosion of banks.
3. Interest Rate Structure : The commission found that the involvement charge per unit of measurement construction as well as charge per unit of measurement of involvement inwards Bharat are highly regulated as well as controlled past times the government. They equally good found that authorities used banking enterprise funds at a inexpensive charge per unit of measurement nether the SLR. At the same fourth dimension the authorities advocated the philosophy of subsidized lending to certainly sectors. The commission felt that at that topographic point was no require for involvement subsidy. It made banks handicapped inwards damage of edifice primary strength as well as expanding credit supply.
4. Additional Suggestions : Committee equally good suggested that the decision of involvement charge per unit of measurement should hold upward on grounds of marketplace forces. It farther suggested minimizing the slabs of interest.

Along alongside these major occupation areas M. Narasimham's Committee equally good found diverse inconsistencies regarding the banking scheme inwards India. In monastic enjoin to withdraw them as well as arrive to a greater extent than vibrant as well as efficient, it has given the next recommendations.

Narasimham Committee Report I - 1991

The Narsimham Committee was prepare inwards monastic enjoin to study the problems of the Indian fiscal scheme as well as to propose to a greater extent than or less recommendations for improvement inwards the efficiency as well as productivity of the fiscal institution.

The commission has given the next major recommendations:-

1. Reduction inwards the SLR as well as CRR : The commission recommended the reduction of the higher proportion of the Statutory Liquidity Ratio 'SLR' as well as the Cash Reserve Ratio 'CRR'. Both of these ratios were really high at that time. The SLR so was 38.5% as well as CRR was 15%. This high total of SLR as well as CRR meant locking the banking enterprise resources for authorities uses. It was hindrance inwards the productivity of the banking enterprise thus the commission recommended their gradual reduction. SLR was recommended to trim back from 38.5% to 25% as well as CRR from 15% to iii to 5%.
2. Phasing out Directed Credit Programme : In India, since nationalization, directed credit programmes were adopted past times the government. The commission recommended phasing out of this programme. This programme compelled banks to earmark so fiscal resources for the needy as well as pathetic sectors at confessional rates of interest. It was reducing the profitability of banks as well as thus the commission recommended the stopping of this programme.
3. Interest Rate Determination : The commission felt that the involvement rates inwards Bharat are regulated as well as controlled past times the authorities. The decision of the involvement charge per unit of measurement should hold upward on the grounds of marketplace forces such equally the demand for as well as the render of fund. Hence the commission recommended eliminating authorities controls on involvement charge per unit of measurement as well as phasing out the concessional involvement rates for the priority sector.
4. Structural Reorganizations of the Banking sector : The commission recommended that the actual numbers of populace sector banks require to hold upward reduced. Three to iv big banks including SBI should hold upward developed equally international banks. Eight to Ten Banks having nationwide presence should concentrate on the national as well as universal banking services. Local banks should concentrate on part specific banking. Regarding the RRBs (Regional Rural Banks), it recommended that they should focus on agriculture as well as rural financing. They recommended that the authorities should assure that henceforth at that topographic point won't hold upward whatever nationalization as well as somebody as well as unusual banks should hold upward allowed liberal entry inwards India.
5. Establishment of the ARF Tribunal : The proportion of bad debts as well as Non-performing property (NPA) of the populace sector Banks as well as Development Financial Institute was really alarming inwards those days. The commission recommended the establishment of an Asset Reconstruction Fund (ARF). This fund volition select over the proportion of the bad as well as doubtful debts from the banks as well as fiscal institutes. It would aid banks to larn rid of bad debts.
6. Removal of Dual control : Those days banks were nether the dual command of the Reserve Bank of Bharat (RBI) as well as the Banking Division of the Ministry of Finance (Government of India). The commission recommended the stepping of this system. It considered as well as recommended that the RBI should hold upward the solely primary way to regulate banking inwards India.
7. Banking Autonomy : The commission recommended that the populace sector banks should hold upward gratis as well as autonomous. In monastic enjoin to pursue competitiveness as well as efficiency, banks must taste autonomy so that they tin reform the piece of work civilization as well as banking technology scientific discipline upgradation volition thus hold upward easy.

Some of these recommendations were subsequently accepted past times the Government of Bharat as well as became banking reforms.

Narasimham Committee Report II - 1998

In 1998 the authorities appointed even so to a greater extent than or less other commission nether the chairmanship of Mr. Narsimham. It is improve known equally the Banking Sector Committee. It was told to review the banking reform progress as well as pattern a programme for farther strengthening the fiscal scheme of India. The commission focused on diverse areas such equally majuscule adequacy, banking enterprise mergers, banking enterprise legislation, etc.

It submitted its written report to the Government inwards Apr 1998 alongside the next recommendations.

1. Strengthening Banks inwards India : The commission considered the stronger banking scheme inwards the context of the Current Account Convertibility 'CAC'. It idea that Indian banks must hold upward capable of treatment problems regarding domestic liquidity as well as central charge per unit of measurement administration inwards the calorie-free of CAC. Thus, it recommended the merger of rigid banks which volition receive got 'multiplier effect' on the industry.
2. Narrow Banking : Those days many populace sector banks were facing a occupation of the Non-performing assets (NPAs). Some of them had NPAs were equally high equally xx per centum of their assets. Thus for successful rehabilitation of these banks it recommended 'Narrow Banking Concept' where weak banks volition hold upward allowed to house their funds solely inwards curt term as well as take chances gratis assets.
3. Capital Adequacy Ratio : In monastic enjoin to improve the inherent strength of the Indian banking scheme the commission recommended that the Government should enhance the prescribed majuscule adequacy norms. This volition farther improve their absorption capacity also. Currently the majuscule adequacy ration for Indian banks is at ix percent.
4. Bank ownership : As it had before mentioned the liberty for banks inwards its working as well as banking enterprise autonomy, it felt that the authorities command over the banks inwards the shape of administration as well as ownership as well as banking enterprise autonomy does non larn manus inwards manus as well as thus it recommended a review of functions of boards as well as enabled them to adopt professional person corporate strategy.
5. Review of banking laws : The commission considered that at that topographic point was an urgent require for reviewing as well as amending primary laws governing Indian Banking Industry similar RBI Act, Banking Regulation Act, State Bank of Bharat Act, Bank Nationalisation Act, etc. This upgradation volition convey them inwards occupation alongside the introduce needs of the banking sector inwards India.

Apart from these major recommendations, the commission has equally good recommended faster computerization, technology scientific discipline upgradation, preparation of staff, depoliticizing of banks, professionalism inwards banking, reviewing banking enterprise recruitment, etc.

Evaluation of Narsimham Committee Reports

The Committee was kickoff prepare inwards 1991 nether the chairmanship of Mr. M. Narasimham who was 13th governor of RBI. Only a few of its recommendations became banking reforms of Bharat as well as others were non at all considered. Because of this a minute commission was i time to a greater extent than prepare inwards 1998.

As far equally recommendations regarding banking enterprise restructuring, administration freedom, strengthening the rule are concerned, the RBI has to play a major role. If the major recommendations of this commission are accepted, it volition examine to hold upward fruitful inwards making Indian banks to a greater extent than profitable as well as efficient.