The Finance Ministry of Government of India (GOI) set up various committees for the task of analyzing India’s banking sector and recommending legislation and regulations to make it more effective, competitive and efficient. Two such expert Committees were set up under the chairmanship of M. Narasimham. They submitted their recommendations in the 1990s in reports widely known as the Narasimham Committee-I (1991) report and the Narasimham Committee-II (1998) Report.
These recommendations not only helped unleash the potential of banking in India, they are also recognized as a factor towards minimizing the impact of global financial crisis starting in 2007.
Read Also: Narasimham Committee Recommendations on Financial Reforms
The purpose of the Narasimham-I Committee was to study all aspects relating to the structure, organization, functions, and procedures of the financial systems and to recommend improvements in their efficiency and productivity. The Narasimham-II Committee was tasked with the progress review of the implementation of the banking reforms since 1992 with the aim of further strengthening the financial institutions of India. It focused on issues like the size of banks and capital Adequacy ratio.
Narasimham Committee – I was formed in 1991 and Narasimham Committee –II was formed in 1998 and both were related to Banking Sector Reforms.
The purpose of the Narasimham-I Committee was to study all aspects relating to the structure, organization, functions and procedures of the financial systems and to recommend improvements in their efficiency and productivity. The Committee submitted its report to the Finance Minister in November 1991 which was tabled in Parliament on 17 December 1991.
The Narasimham-II Committee was tasked with the progress review of the implementation of the banking reforms since 1992 with the aim of further strengthening the financial institutions of India. It focused on issues like the size of banks and capital adequacy ratio among other things. M. Narasimham, Chairman, submitted the report of the Committee on Banking Sector Reforms (Committee-II) to the Finance Minister Yashwant Sinha in April 1998.
Problems Identified by the Narasimham Committee are Directed Investment Programme, Directed Credit Programme, Interest Rate Structure.
The Narasimham Committee was set up in order to study the problems of the Indian financial system and to suggest some recommendations for improvement in the efficiency and productivity of the financial institution. They are:
- Reduction in the SLR and CRR
- Phasing out Directed Credit Programme
- Interest Rate Determination
- Structural Reorganizations of the Banking sector
- Establishment of the ARF Tribunal
- Removal of Dual control
- Banking Autonomy
In 1998 the government appointed yet another committee under the chairmanship of Mr. Narasimham. It is better known as the Banking Sector Committee. It was told to review the banking reform progress and design a programme for further strengthening the financial system of India. The committee focused on various areas such as capital adequacy Ratio, bank mergers, bank legislation, Strengthening Banks in India, Narrow Banking etc.
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