Narasimham Committee I (1991)


The first Narasimham Committee (Committee on the Financial System – CFS) was appointed by Manmohan Singh as India’s Finance Minister on 14 August 1991

The Committee was established under former RBI Governor M. Narasimham.

It was set up to examine all aspects relating to the structure, organisation, functions and procedures of the financial system.

The Committee submitted its report in November, 1991 making a number of recommendations for reforms in the banking sector and also in the capital market.

 

Recommendations of Narasimham Committee I (1991)

[1] SLR was recommended to reduce from 38.5 % to 25% and CRR was recommended to be reduced from 15% to a range of 3-5% by 1996-97 to give banks more funds to carry business.

[2] Since nationalization the government has encouraged the lending to agriculture and small-scale industries at a confessional rate of interest. It is known as the directed credit programme. The committee recommended phasing out of this programme. It also called for a re-defining of the priority sector.

[3] The committee recommended eliminating government controls on interest rate and phasing out the concessional interest rates for the priority sector.

[4] The committee recommended that the actual numbers of public sector banks need to be reduced.

[5] Three to four big banks including SBI should be developed as international banks.

[6] Eight to Ten Banks having nationwide presence should concentrate on the national and universal banking services.

[7] Local banks should concentrate on region specific banking.

[8] Regional Rural Banks should focus on agriculture and rural financing.

[9] Private and foreign banks should be allowed liberal entry in India.

[10] There should be no bar to start new banks in the private sector.

[11] The committee recommended the establishment of an Asset Reconstruction Fund (ARF).

[12] The Committee recommended that the assets of bank should be classified into 4 categories: (a) standard (b) sub-standard (c) doubtful, and (d) loss assets.

[13] The committee recommended that the RBI should be the only main agency to regulate banking in India.

[15] The committee recommended that the public sector banks should be free and autonomous.

[16] The Committee suggested that there should be no need to obtain any prior permission to issue capital.