The Narasimham Committee refers to two committees appointed by the Government of India to suggest reforms and recommendations for the Indian banking sector. The committees were headed by M. Narasimham, a former Governor of the Reserve Bank of India (RBI). Here are the details of both committees:

  1. Narasimham Committee I (1991):
    The first Narasimham Committee was constituted in 1991 to examine and recommend measures to strengthen the Indian banking system. The committee submitted its report in November 1991, which became the basis for significant reforms in the banking sector. The key recommendations of the committee included:
  • Recapitalization of public sector banks to enhance their financial strength and operational efficiency.
  • Reduction of government interference in banking operations and granting more autonomy to banks.
  • Liberalization of licensing norms for new private sector banks to encourage competition.
  • Strengthening prudential norms and guidelines for asset classification, provisioning, and capital adequacy.
  • Introduction of risk-based supervision and adoption of international accounting standards.
  • Establishment of asset reconstruction companies to tackle the problem of non-performing assets (NPAs).
  • Encouragement of mergers and consolidation of banks to create stronger and more efficient entities.

The recommendations of the Narasimham Committee I laid the foundation for significant reforms in the banking sector, leading to the liberalization and modernization of Indian banking.

  1. Narasimham Committee II (1998):
    The second Narasimham Committee was constituted in 1998 to review the progress made after the implementation of the recommendations of the first committee. The committee submitted its report in April 1998, which further suggested reforms to strengthen the banking sector. The key recommendations of the committee included:
  • Strengthening of the supervisory role of the RBI to ensure the soundness of the banking system.
  • Introduction of risk management systems, internal controls, and prudential norms for banks.
  • Phasing out of directed lending and priority sector lending targets to enhance the efficiency of credit allocation.
  • Adoption of internationally accepted accounting standards and disclosure norms.
  • Relaxation of entry barriers for foreign banks to promote competition and improve efficiency.
  • Establishment of a Credit Information Bureau to improve credit assessment and risk management.

The recommendations of the Narasimham Committee II aimed to address the evolving challenges faced by the banking sector and further enhance its efficiency, competitiveness, and stability.

The reports of both Narasimham Committees played a significant role in shaping the reforms and policies in the Indian banking sector. The recommendations led to the implementation of various measures, including the introduction of Basel norms, liberalization of the banking sector, strengthening of prudential norms, and enhancing governance and accountability in the banking system.