narasimham committee ppt for monday
TRANSCRIPT
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Narasimham Committee
Banking and Insurance
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The Presenting Committee
• Ashish Prabhu• Rohan Sadula• Priya Krishnamurthy• Ankush Poojari• Amar Chada• Amod Bhat
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Why the Committee
• 1969- Banks Nationalization• Effects – Phenomenal increase in the geographical coverage
of our banking and financial institutions.– Despite impressive quantitative achievement- low
efficiency and productivity, bad portfolios performance, and eroded profitability.
– Several public sector banks and financial institutions were incurring losses year after year.
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About the committee
• 1991 -RBI proposed the committee chaired by M. Narasimham, former RBI Governor to review the Financial System
• Review- aspects relating to the Structure, Organization, Procedures and Functioning of the financial system
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About the committee
• Constituted in 1991, the Committee submitted two reports, in 1992 and 1998, which laid significant thrust on enhancing the efficiency and viability of the banking sector
• The Narasimham Committee laid the foundation for the reformation of the Indian banking sector
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Problems faced then…• Higher rates of CRR(15%) and SLR(38.5%)
• Directed credit programs
• Political and Administrative interference
• Subsidizing of credit
• Mounting expenditures of banks
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1991 1992 1993 1994
The Time Line
1st Narasimham Committee ReportIntroduction to Risk weighted capital adequacy norms and
prudential normsDeregulation of interest ratesBanking ombudsman scheme
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1995 1996 1997 1998
The Time Line (Cont.)
Local Area Banks introducedFirst shared payment network2nd Narasimhan committee reportGuidelines on Risk management issued by RBI
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Major Recommendations
• Reduction of Statutory Liquidity Ratio (SLR) to 25 per cent over a period of five years
• Progressive reduction in Cash Reserve Ratio (CRR) to 3-5%
• Phasing out direct credit programs and redefining the priority sector
• Setting the capital adequacy ratio (CAR) to 8 percent by March 1996
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Major Recommendations
• Opening of More Pvt. sector banks • Motivation foreign banks to expand their
network by opening new branches• Deregulation of RBI and Finance ministry of
India. Making RBI as a regulator of all Banks and let Banks takes participation in equity market with govt. stake of 51%
• Other Regulation introduced by RBI include Asset classification ,NPA ratio
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Major Recommendations (cont.)
• Corporate Governance : promoting customer relations and office culture
• Asset Reconstruction for bringing down NPA in future
• Risk Management • CDR • E-Banking and VRS
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Narasimham Committee 2
• Review –Progress of banking sector reforms to
date
–Financial sector reforms to strengthen India's financial system and make it internationally competitive
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Major Recommendations
• Need for stronger banking system
• Experiment with concept of narrow banking
• Small local banks
• Capital Adequacy Ratio
• Review and update banking laws.
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Emergence of 9 new private sector banks
Opening up of vibrant capital market
Great impact on banks’ balance sheets both on assets and liabilities side
The Effect
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• Deposit interest rate• Increase in capital Adequacy
requirementLiability Side
• Reforms on Lending rate• Lower CRR and SLR• IRAC norms
Asset Side
• Structural Reforms• Entry to new business lines
Other Reforms
The Effect (Cont.)
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Some Facts…
• Nationalization of banks in 1969: 14 banks were nationalized
• Branch expansion: Increased from 8260 in 1969 to 71177 in 2006
• Population served per branch has come down from 64000 to 16000
• A rural branch office serves 15 to 25 villages within a radius of 16 kms
• However, at present only 32,180 villages out of 5 lakh have been covered
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Some Facts…
• Deposit mobilization– 1951-1971 (20 years)- 700% or 7 times– 1971-1991 (20 years)- 3260% or 32.6 times– 1991- 2006 (11 years)- 1100% or 11 times
• Expansion of bank credit: Growing at 20-30% p.a. thanks to rapid growth in industrial and agricultural output
• Development oriented banking: priority sector lending
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Some Facts…
• Diversification in banking: Banking has moved from deposit and lending to– Merchant banking and underwriting– Mutual funds– Retail banking– ATMs– Internet banking– Venture capital funds– Factoring
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THANK YOUA penny saved is a penny earned