Financial Sector Reform Committee

One of the most critical aspects of the development of India is the Indian financial system. The assistance and amenities that are provided by several institutions like- banks, pensions, insurance organisations, and companies, among others- all constitute the financial system. This system not only encourages savings but also investments within the country- which helps in the overall growth of the country. 

Capital formation is one of the fundamental characteristics of the financial system in the country. The Indian Financial system looks at the circulation of funds between commercial, business, and household sectors. The circulation also includes the funding of the government sector. This circulation helps in the improvement of all the sectors and uplifts their conditions. 

This system mainly focuses on the running and governing of the instrument of exchange, distribution, production, and possessions of the financial assets, etc. The financial system in the country has four principal components. These components are- Financial assets, Financial institutions, Financial Markets, and Financial Services. In order to facilitate the financial sector reform committee, we must first briefly look at the financial reforms. 

Reforms

The financial sector reforms in India refer to the changes made in the market system and the banking systems. As an efficient and balanced banking system helps in the well functioning of the economy. The high rate of investments and savings are the most crucial element of economic growth in the country. Proceeding the year of liberalisation, privatisation, and globalisation, there had been several deficiencies with respect to the quality, efficiency, and operations of the financial sector.  

The issues of the banking and financial systems were analysed by several committees in the year 1991 and the committees on the financial sector reforms in India were headed by Narasimham. The financial sector reforms committee analysed that the system of banking in India is equally over-regulated as well as under-regulated. In order to understand the financial sector reform in India can be better understood with the help of the recommendations of these financial sector reform committees.

Narasimham Recommendations

 The then finance minister (Mr. Manmohan Singh) set up the Narasimham Committee for analysing the banking system in India and recommending reforms. Narasimham was the thirteenth governor of the Reserve Bank of India. The first Narasimham Committee was set up in 1991, followed by the 1998 committee. 

1. Narasimham Committee Recommendation given in the year 1991-

• The committee suggested the deregulation of the rate of interests

• Suggested an upper limit of 8 percent ratio of capital adequacy

• The committee suggested the setting of funds for assets reconstruction

• The committee recommended the proper classification and disclosure of the assets and bank accounts, respectively

• It suggested a semi-autonomous body that comes under the Reserve Bank for the supervision of financial institutions and banking systems

• The most important recommendation of the committee was the set up of a 4 tier hierarchy, that includes 3-to 4 critical public sector banks at the top of the hierarchy and the rural development banks at the bottom of the hierarchy. 

2. Narasimham Committee Recommendation given in the year 1998-

The recommendation of the committee included narrow banking, reforms in the role of the Reserve Bank, ownership of government for the banks, foreign banks, a Ratio of capital adequacy, and a stronger system of banking. 

Another important financial sector reform committee is the committee related to financial inclusion in the country. Let us look at financial inclusion and the committee related to financial inclusion.

Financial Inclusion

Financial Inclusion is one of the major objectives of the Indian Government. Some of the principal changes made in this respect in the past fifty years are the bank nationalisation, Jan Dhan Accounts, Aadhar Enabled payment system, vigorous network of commercial banks, rural banks, and cooperatives, bank schemes, self-help group formations, and BSBD zero balance accounts, Pradhan Mantri Vay Vandana, Stand up India Scheme, etc. It can be said that the main motive of the financial sector reforms committees in Financial Inclusions in the country. 

Financial inclusion is the process that ensures access to several financial services by the sections of the population which are comparatively weaker in the society, at a reasonable and affordable price. It highlights the term universal access. The Medium-term path to the Financial Inclusion committee headed by Dr. C Rangarajan set up the broad inventiveness of financial inclusion in the country. 

Conclusion

One of the most critical aspects of the development of India is the Indian financial system. This system mainly focuses on the running and governing of the instrument of exchange, distribution, production, and possessions of the financial assets, etc. The financial system in the country has four principal components. The financial sector reforms in India refer to the changes made in the market system and the banking systems. As an efficient and balanced banking system helps in the well functioning of the economy. Financial Inclusion is one of the major objectives of the Indian Government. It can be said that the main motive of the financial sector reforms committees in Financial Inclusions in the country.