Narasimham Committee Report 1 - Year 1991

Banking Awareness Study Material

Narasimham Committee Report 1 - Year 1991

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.

The following were the main recommendations of the committee :

1. Reduction in the CRR and SLR : These ratios were very high at the time (SLR = 38.5% and CRR = 15%). This meant locking the bank resources for government uses. It was a problem in the way of the productivity of the banks therefore the committee recommended to reduce these. CRR was reduced to a value of 3.5 % and SLR to 25%.


2. Stopping the Directed Credit Programme : This programme was reducing the profitability of the banks and thus was stopped.


3. Elimination of government control on interest rate determination : The committee felt that the interest rate determination must be on the grounds of market forces such as demand and supply etc. and not in the control of the authorities.


4. Structural Reorganization of the Banking sector : The committee recommended that the government should assure that henceforth there would not be any nationalization of the banks and private and foreign banks should be allowed liberal entry in India.


5. Establishment of the ARF tribunal : The committee recommended the establishment of an Asset Reconstruction Fund (ARF). This fund would take over the proportion of the bad and doubtful debts from the banks and financial institutes.


6. Removal of Dual Control : Those days banks were under the dual control of RBI and Government of India. The committee recommended that it should only be in control of the RBI.


7. Banking Autonomy : The committee recommended that the public sector banks should be free and autonomous. Banks must enjoy autonomy so that they can reform the reform the work culture hence be more efficient.

Some of these recommendations were later accepted by the Government of India and became Banking reforms.