Thursday, March 21, 2013

Banking Sector Reform in short

Narasimman Committee on Financial System - I (1991)
    1. Lesson CRR from 15% to 3-5%, allow SLR on beneficial investments. Do OMO (Open Market Operations) for evening out money supply.
    2. Phase out "Priority Sector Lending". Keep it within 10% total lendings of a bank. Give for only weaker sections.
    3. Let the market decide interest rates on deposits and of loans. Let the "Bank Rate" be an anchor and others linked to it.
    4. Abolish dual control of banking sector (RBI and Banking Division of FinMin), let RBI be the sole agency of banking regulation. Reduce public sector banks and let it apolitical, autonomous and professional.
    5. Tackle the menace of Non Performing Asset through Asset reconstruction Companies.

Narasimman Committee on Financial System - II (1997)
    1. Make the banking system stronger by merging public sector banks and all India financial institution and close down the loss making ones.
    2. After mergers let banking system be on 3 tiers,
        Tier-I International orientation
        Tier-II National orientation
        Tier-III Local banks
    3. Strong legal frame work for debt recovery (SARFAES Act)
    4. CRAR - 10%
    5. Rationalize bank's board.
    6. Don't give money to the public sector banks from budget allocations (Budget recapitalization of banks).
    7. Depoliticize banking staffs.
    8. Setup Board for Financial Regulation and Supervision for whole financial institutions, banks and NBFCs.
    9. Licensing private banks, that's good... keep it up.

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