Narasimham Committee Report I & II
Narasimham Committee Report I & II
6. Removal of Dual control : Those days banks were under the dual control
of the Reserve Bank of India (RBI) and the Banking Division of the Ministry
of Finance (Government of India). The committee recommended the
stepping of this system. It considered and recommended that the RBI
should be the only main agency to regulate banking in India.
ADVERTISEMENTS:
The directed Credit programmes should be abolished gradually. The priority sector should be
redefined.
The rate of interest should be determined freely without the intervention of the Reserve Bank
of India. Attempts should be made to achieve a minimum 4 per cent capital adequacy ratio in
relation to risk weighted assets by March 1993.
The committee recommended for the adoption of uniform accounting practices particularly in
regard to income recognition and provisioning against doubtful debts. It also recommended
imparting for transparency to bank balance sheets and making full disclosures in them.
ADVERTISEMENTS:
The special tribunals should be set up to speed up the process of the recovery of loans. An
Assets Reconstruction Fund (ARF) should be established to take over from banks and
financial institutions a portion of their bad and doubtful debts at a discount.
(i) The banking system should be restructured so as to have 3 or 4 large banks which could
become international in character.
(ii) There should be 8 to 10 national banks with network of branches throughout the country
engaged in universal banking.
(iii) There should be local banks whose operation would be generally confined to specific
region.
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(iv) There should be rural banks whose operation would be confined to rural areas and
whose business would be to finance agriculture and allied activities It recommended setting
up of one of more rural banking subsidiary by each public sector bank to take over all its
rural branches.
(vi) The Regional Rural Banks should be permitted to engage in all types of banking
business.
The committee recommended abolition of branch licensing and leaving the matter of
opening or closing of branches to the commercial judgment of individual banks.
8. Foreign Banking:
The committee recommended for liberalizing the policy with regard to allowing foreign banks
to open offices in India as branches or as subsidiaries. The foreign operations of Indian
banks should be rationalised.
Banks is given freedom to recruit officers. The banks be inspected on the basis of internal
inspection report.
The dual control over the banking system of the Finance Ministry and Reserve Banks should
be ended. The Reserve Bank should establish a separate quasi- autonomous body to take
over to supervisory function over the banks.
(ii) The Reserve Bank should set up a new agency to supervise financial institutions such as
merchant banks, mutual funds, leasing companies, venture capital companies and factor
companies.
2. Narrow Banking : Those days many public sector banks were facing
a problem of the Non-performing assets (NPAs). Some of them had
NPAs were as high as 20 percent of their assets. Thus for successful
rehabilitation of these banks it recommended 'Narrow Banking
Concept' where weak banks will be allowed to place their funds only
in short term and risk free assets.