Narasimham Commission Study 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 too 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 ane of the reasons for the pitiable profitability of banks. Similarly, the Cash Reserve Ratio- (CRR) was equally high equally fifteen percent. Taken together, banks needed to keep 53.5 pct of their resources idle amongst 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 indicate 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 profits 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 too found that authorities used banking concern 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 spot was no require for involvement subsidy. It made banks handicapped inwards price of edifice primary strength as well as expanding credit supply.
4. Additional Suggestions : Committee too suggested that the decision of involvement charge per unit of measurement should live on on grounds of marketplace forces. It farther suggested minimizing the slabs of interest.

Along amongst these major work areas M. Narasimham's Committee too found diverse inconsistencies regarding the banking scheme inwards India. In monastic enjoin to take 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 around 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 real high at that time. The SLR so was 38.5% as well as CRR was 15%. This high sum of SLR as well as CRR meant locking the banking concern resources for authorities uses. It was hindrance inwards the productivity of the banking concern 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 pitiable 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 live on on the grounds of marketplace forces such equally the demand for as well as the furnish 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 live on reduced. Three to 4 big banks including SBI should live on 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 spot won't live on whatsoever nationalization as well as someone as well as unusual banks should live on 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 real alarming inwards those days. The commission recommended the establishment of an Asset Reconstruction Fund (ARF). This fund volition pick out over the proportion of the bad as well as doubtful debts from the banks as well as fiscal institutes. It would assistance banks to instruct 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 live on the alone primary means to regulate banking inwards India.
7. Banking Autonomy : The commission recommended that the populace sector banks should live on costless 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 civilisation as well as banking applied scientific discipline upgradation volition thus live on easy.

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

Narasimham Committee Report II - 1998

In 1998 the authorities appointed nevertheless around other commission nether the chairmanship of Mr. Narsimham. It is ameliorate known equally the Banking Sector Committee. It was told to review the banking reform progress as well as blueprint a programme for farther strengthening the fiscal scheme of India. The commission focused on diverse areas such equally uppercase adequacy, banking concern mergers, banking concern legislation, etc.

It submitted its written report to the Government inwards Apr 1998 amongst 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 live on capable of treatment problems regarding domestic liquidity as well as telephone commutation charge per unit of measurement management inwards the low-cal 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 work of the Non-performing assets (NPAs). Some of them had NPAs were equally high equally twenty pct of their assets. Thus for successful rehabilitation of these banks it recommended 'Narrow Banking Concept' where weak banks volition live on allowed to house their funds alone inwards brusk term as well as take a opportunity costless 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 heighten the prescribed uppercase adequacy norms. This volition farther improve their absorption capacity also. Currently the uppercase 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 concern autonomy, it felt that the authorities command over the banks inwards the shape of management as well as ownership as well as banking concern autonomy does non become paw inwards paw 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 spot 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 pick out them inwards draw of piece of work amongst the acquaint needs of the banking sector inwards India.

Apart from these major recommendations, the commission has too recommended faster computerization, applied scientific discipline upgradation, grooming of staff, depoliticizing of banks, professionalism inwards banking, reviewing banking concern 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 in ane trial again prepare inwards 1998.

As far equally recommendations regarding banking concern restructuring, management 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 attempt out to live on fruitful inwards making Indian banks to a greater extent than profitable as well as efficient.