Purpose of the Narasimham Committee

In the 1990s, when the banks of the country were not working properly during the Economic Liberation of India. That was the time when the country felt there was a need for a properly working banking system for the development of the economy in the nation. Follow the article to know more about the Narasimham Committee.

Narasimham Committee

The Narasimham Committee is an immensely powerful banking system reform that came into existence after independence. Both the financial system and the banking sector reforms of the committee have changed the functionality of every Indian bank in a very commendable way.

India as a country has developed significantly when it comes to economic development also the banking sector of the country during this has improved and helped in the proper functioning of the country. During 1991, the finance minister of the country (Dr. Man Mohan Singh) sets up several committees who are given multiple tasks for the proper analysis of the banks in the country. That is why the regulation and the legislation of all the banks are quite effective, efficient, and incredibly competitive against others.

Two different committees were started by Maidavolu Narasimham when he was the chairperson. During that period there were several reports and recommendations which were published. These recommendations have helped in unleashing the potential of the Indian banks. They are the ones which help in the minimizing of defects of the budgetary crisis that was held in 2007 on the people of the country. That is why Indian banks have survived in the year 2008.

Recommendations of the Narasimham Committee (I)

Narasimham Committee has been a great help in the development of the working of the banks in the country and it’s saved the country from different crises, such as the Global Economic crisis in the year 2007 too. Some of the major recommendations done by the first committee in the year 1991 are given below:

• The very first Narasimham committee was set up in the year 1991 when Maidavolu Narasimham was the chairperson of the country, he has also been the 13th governor of the RBI (Reserve Bank of India).
• Determination of the Interest Rates: The committee suggested that there should be an interest rate that has to be based on the market forces. 
• Dual Control’s Removal: The Reserve Bank of India and the banking division of India are both functioning under the Ministry of Finance. But the committee had been asked to only let the RBI regulate the whole sector of banking.
• Freedoms to the banks: The committee recommended giving more freedom to the other banks. They believe that this will help the bank to run properly and perform effectively and autonomously. Based on professionalism and the integrity of the banks their chief executives and directors of the board must be appointed.

Recommendations of the Narasimham Committee (II)

The second generation of reforms in the financial sector was formed again in the year 1998 under M. Narasimham who was still the chairperson. This committee was supposed to give its report to the Finance Minister of India on the 20th of April 1998. It mainly concentrated on technological up-gradation and the strengthening of the banking sector’s main foundation. The major Recommendation is given below:

• It has been suggested by the committee that there should be a capital requirement of about 5% after foreign exchanges that go in the open position limitations. The committee has also recommended that the opening of the foreign exchanges should be carrying their 100% risk weightage.
• The public sector banks had been allowed to recruit from the open banks or they can recruit just by the campus recruitments.
• The banks were also allowed to issue their bonds for the argumentation of their Tier-2 capital. Although, the guarantee of these bonds by the Indian Government was not considered a necessity.

Conclusion

As it has been mentioned in the above article, the purpose of the Narasimham Committee has been very clear about the development of the country with its financial sector. Two different committees were started by Maidavolu Narasimham when he was the chairperson. During that period there were several reports and recommendations which were published. These recommendations have helped in unleashing the potential of the Indian banks.