Banking Sector Reform

From the 1991 India economic crisis to its status of third largest economy in the world by 2011, India has grown significantly in terms of economic development. So has its banking sector. During this period, recognizing the evolving needs of the sector, the Finance Ministry of Government of India (GOI) set up various committees with the task of analyzing India's banking sector and recommending legislation and regulations to make it more effective, competitive and efficient.[1] Two such expert Committees were set up under the chairmanship of M. Narasimham. They submitted their recommendations in the 1990s in reports widely known as the Narasimham Committee-I (1991) report and the Narasimham Committee-II (1998) Report. These recommendations not only helped unleash the potential of banking in India, they are also recognized as a factor towards minimizing the impact of global financial crisis starting in 2007. Unlike the socialist-democratic era of the 1960s to 1980s, India is no longer insulated from the global economy and yet its banks survived the 2008 financial crisis relatively unscathed, a feat due in part to theseNarasimham Committees.[2] Contents [hide] * 1 Background * 2 Recommendations of the Committee * 2.1 Autonomy in Banking * 2.2 Reform in the role of RBI * 2.3 Stronger banking system * 2.4 Non-performing assets * 2.5 Capital adequacy and tightening of provisioning norms * 2.6 Entry of Foreign Banks * 3 Implementation of recommendations * 4 Criticism * 5 Reception * 6 References |
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[edit]Background
During the decades of the 60s and the 70s, India nationalised most of its banks. This culminated with the balance of payments crisis of the Indian economy where India had to airlift gold toInternational Monetary Fund (IMF) to loan money to meet its financial obligations. This event called into question the previous banking policies of India and triggered the era of