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August 11, 2014

Narasimham Committee Recommendations on Banking Reforms

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The Government of India constituted a 9-member committee under the chairmanship of Mr. M. Narasimham, Retired RBI Governor, on 14th August 1991 for making recommendations on existing financial system and to give suggestions for improving the existing structure. The committee submitted its report to the Finance Minister in November 1991 which was placed on the table of Parliament on 17th December 1991. The salient recommendations of the committee are :
  1. 4-tier banking system should be introduced in the country.
    • I Tier - 3 or 4 International Banks
    • II Tier - 8 or 10 National banks
    • III Tier - Regional Banks
    • IV Tier - Rural Banks
  2. Branch licensing system for opening new bank branches should be abolished.
  3. A liberal view should be adopted for allowing foreign banks in the country. Both foreign and domestic banks should be treated at par. 
  4. SLR for banks should be curtailed to the level of 25% within next 5 years. CRR should also be curtailed in various phases.
  5. Banks should be given more autonomy and the directed credit should be abolished. 
  6. Primary targets for credit should be redefined and such credit should not be more than 10% of total credit.
  7. Computerization of banks should be promoted. 
  8. Banks should be authorized to appoint banking official at their own discretion. 
  9. The dual control of RBI and Finance Ministry on banks should be abolished and RBI should function only as a regulatory authority of banking system in the economy. 
  10. RBI's representative should not be included in the management boards of banks. Only Government representative should be there. 
  11. Granting resources to development finance institutions on concessional rates of interest should be abolished in phases within next 3 years. These institutions should be allowed to mobilize resources from open market on competitive rates. 
  12. Quick and effective liberal attitude should be adopted in the policy related to capital market. System of getting prior permission by the companies for their new share issues should also be abolished.
That's all for now friends. In our next post we shall discuss about the Recommendations of Goiporia Committee on Consumer Service improvement. Happy Reading :)

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