First Narasimham Committee

First Narasimham Committee

The most important committee was Narasimham Committee on banking Sector Reforms. It was set up in 1991.

Please note that there were two Narasimham Committees.

• Narasimham Committee –I was formed in 1991 and Narasimham Committee –II was formed in 1998 and both were related to Banking Sector Reforms.
  

First Narasimham committee submitted its report in November 1991. It recommended the following:

• Reduction in the Statutory Liquidity Ratio
  
• Reduction in the Cash Reserve RatioThe Cash Reserve Ratio is the amount of funds that the banks are bound to keep with Reserve bank of India, with reference to the .....
  
• Interest rate in CRR Balances
  
• Redefining the priority sector
  
• DeregulationThe process of removing legal or quasi legal restriction on the type of business done or on the prices charged, within a particular industry. The ..... of the Interest RatesWhen a person borrows some money from another person, this money comes at an interest which can also be called the "Opportunity Cost" of the ......
  
• Asset Classification and defining the Non Performing Assets.
  
• Improve transparency in the banking system
  
• Tribunals for recovery of Loans.
  
• Tackling doubtful debts
  
• Restructuring the banks
  
• Allow entry of the new private Banks
  

Please note these memorable Points:

• The Narasimham Committee had recommended that the SLR should be reduced to 25% over the period of time.
  
• The Narasimham Committee recommended that CRR should be reduced to 10% over the period of time.
  
• The impact of reducing the CRR and SLR was that now more funds of the banks could be deployed to some more remunerative loan assets.
  
• The Narasimham Committee recommended that the Priority sector should be redefined and it should include the following:
  
  • Marginal farmers
    
  • Tiny sector
    
  • Small business and transport operators
    
  • Village and Cottage Industries
    
• Narasimham Committee recommended that there should be a target of 10% of the aggregate credit fixed for the Priority Sector at least. (discussed later)
  
• The result of the Narasimham committee led to some milestones in the banking sector reforms in India.