Narasimham Committee
Narasimham is the most powerful banker of India post-independence. The way his reports –
Narasimham Committee on Financial System (1991) and the Narasimham Committee on
Banking Sector Reforms (1998) transformed the functionality of the Indian Banking sector is
commendable. He is also known for pioneering historical events such as bank mergers, asset
reconstruction firms and the emergence of new-generation private banks.
Narasimham Committee 1991
History of the Committee
• The banks were not functioning properly during India’s economic liberalisation in 1991.
• India felt the need for an efficient banking system that is required for a nation’s economic
development.
• That is why ex-Finance Minister of India Dr. Manmohan Singh established the
Narasimham committee to examine the functioning of banks.
• On 14th August 1991, Government of India appointed a nine-member team called the
Narasimham Committee I. Its chairman was Maidavolu Narasimham.
• From 2nd May 1977 to 30th November 1977, Narasimham remained the 13th governor of
RBI.
• The first report was introduced on 17th December 1991 in the parliament
Recommendations of Narasimham Committee I
• Reduction in SLR and CLR
At that time, both Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR) were
extremely high. The SLR was 38.5%, and CRR was 15%. To increase the bank’s productivity
rates, the committee recommended reducing these high proportions. Accordingly, they suggested
reducing SLR rates from 38.5% to 25% and CRR from 15% to 3-5%.
• Phasing out Directed Credit Programme
The Government of India implemented credit programmes that compelled banks to set aside
funds for the needy and poor sectors at decreased rates. The committee suggested phasing out
this program as it was not profitable for them.
• Interest Rate Determination
Narasimham committee insisted on determining interest rates based on market forces such as the
supply and demand for funds. Earlier it was regulated by the Government of India. They
suggested eliminating this process.
Narasimham is the most powerful banker of India post-independence. The way his reports –
Narasimham Committee on Financial System (1991) and the Narasimham Committee on
Banking Sector Reforms (1998) transformed the functionality of the Indian Banking sector is
commendable. He is also known for pioneering historical events such as bank mergers, asset
reconstruction firms and the emergence of new-generation private banks.
Narasimham Committee 1991
History of the Committee
• The banks were not functioning properly during India’s economic liberalisation in 1991.
• India felt the need for an efficient banking system that is required for a nation’s economic
development.
• That is why ex-Finance Minister of India Dr. Manmohan Singh established the
Narasimham committee to examine the functioning of banks.
• On 14th August 1991, Government of India appointed a nine-member team called the
Narasimham Committee I. Its chairman was Maidavolu Narasimham.
• From 2nd May 1977 to 30th November 1977, Narasimham remained the 13th governor of
RBI.
• The first report was introduced on 17th December 1991 in the parliament
Recommendations of Narasimham Committee I
• Reduction in SLR and CLR
At that time, both Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR) were
extremely high. The SLR was 38.5%, and CRR was 15%. To increase the bank’s productivity
rates, the committee recommended reducing these high proportions. Accordingly, they suggested
reducing SLR rates from 38.5% to 25% and CRR from 15% to 3-5%.
• Phasing out Directed Credit Programme
The Government of India implemented credit programmes that compelled banks to set aside
funds for the needy and poor sectors at decreased rates. The committee suggested phasing out
this program as it was not profitable for them.
• Interest Rate Determination
Narasimham committee insisted on determining interest rates based on market forces such as the
supply and demand for funds. Earlier it was regulated by the Government of India. They
suggested eliminating this process.
