DMPQ: Post 1991 Indian economy saw a sudden change in outlook. To bring reforms in the financial sector GOI set up Narsimha committee. Discuss its recommendation.

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It was in the wake of the Liberalisation in 1991 that it cecame imperative for the government to reform the financial sector in order to reinvigorate the economy. GOI set up committee under the guidelines of  Narsimha.

Recommendation:

  • It advised the RBI not to use CRR as a principal investment of monetary and credit control rather OMO should be used.
  • Progressive reduction of CRR from 5% to 3%
  • Advised to
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pay interest on CRR.
  • SLR to be cut at minimum level possible.
  • Progressively move towards a market based borrowing programme.
  • IT phased out gradually the PSL and to redefine the priority sector with the fixed upper limit.
  • Interest rate -decided by market forces.
  • of PSB’s to be reduced and a scenario of mergers and acquisition needs to be look into.
  • The dual control of RBI and the banking division of the Ministry of finance must go immediately.
  • Appointment of the CMO’s of the bank were not to be on the political consideration  but on professionalism, merit and integrity.
  • Asset reconstruction companies for NPA’s.
  • Setting up of Tribunals for dispute resolution.

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