Topics Covered: Inclusive growth and issues arising from it.
Father of banking reforms’: Ex-RBI governor M Narasimham passes away at 94:
Who was M Narasimham?
Narasimham was known for being the chair of two high-powered committees on banking and financial sector reforms.
- Such is the importance of the two Narasimham Committees that some of their aspects are referred to and employed to this date. For instance, the idea of bank mergers and creating strong megabanks was first mooted by the Narasimham Committee.
First Narasimham Committee Report:
Presented in 1991.
- It recommended the creation of a four-tier banking structure with three large banks on top.
- It also introduced the concept of rural-focused banks such as local area banks.
- It proposed a phased reduction in banks’ mandatory bond investment and cash reserve limits so that banks lend money for other productive needs of the economy.
- It introduced the concept of capital adequacy ratio and proposed the abolition of the branch licensing policy.
- The concepts of non-performing assets classification and full disclosure of accounts were also recommended by the first committee.
- By proposing to deregulate interest rates, it brought in greater competition among banks.
- The committee introduced the concept of an asset reconstruction fund to take over bad debts.
Narasimham Committee Report II – 1998:
In 1998 the government appointed yet another committee under the chairmanship of Mr Narsimham. 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, bank mergers, bank legislation, etc.
Prelims Link and Mains Link:
Key recommendations by Narasimham headed committees.
Sources: the Hindu.