Narasimhan Committee

Topics: Bank, Banking, Interest rate Pages: 10 (3119 words) Published: June 1, 2013

India has over the last decades experienced different degrees of repressive policies in the banking sector. This paper focuses on the changing intensity of three policies that are commonly associated with financial repression, namely interest rate controls, statutory pre-emptions and directed credit as well as the effects these policies had. The main findings are that the degree of financial repression has steadily increased between 1960 and 1980, then declined somewhat before rising to a new peak at the end of the 1980s. Since the start of the overall economic reforms in 1991, the level of financial repression has steadily declined. Despite the high degree of financial repression, no statistically significant negative effects on savings, capital formation and financial development could be established, which is contrary to the predictions of the financial liberalization hypothesis. The Indian banking industry is measured as a flourishing and the secure in the banking world. The country's economy growth rate by over 9 percent since last several years and that has made it regarded as the next economic power in the world. The paper deals with the banking sector reforms and it has been discussed that India's banking industry is a mixture of public, private and foreign ownerships. The major dominance of commercial banks can be easily found in Indian banking, although the co-operative and regional rural banks have little business segment. Further the paper has discussed an evaluation of banking sector reforms and economic growth of the country since from the globalization and its effects on Indian economy. Competition among financial intermediaries gradually helped the interest rates to decline


The efficient, dynamic and effective banking sector plays a decisive role in accelerating the rate of economic growth in any economy. In the wake of contemporary economic changes in the world economy and other domestic crises like adverse balance of payments problem, increasing fiscal deficits our country too embarked upon economic reforms (Ahulwalia M. S; 1993). The Government of India introduced economic and financial sector reforms in 1991 and banking sector reforms were part and parcel of financial sector reforms. These were initiated in 1991 to make Indian banking sector more efficient, strong and dynamic.

The recommendations of the Narishiman Commission-I in 1991 provided the blue print for the first generation reforms of the financial sector,the period 1992-97 witnessed the laying of the foundations for reforms in the banking system. This period saw the implementation of prudential norms (relating to capital adequacy, income recognition, asset classification and provisioning, exposure norms etc). The structural changes accomplished during the period provided foundation of further reforms. Against such backdrop, the Report of the Narishiman Committee- II in 1998 provided the road map of the second generation reforms processes. Y.V. Reddy noted that the first generation reforms were undertaken early in the reform cycle, and the reforms in the financial sector were initiated in a well structured, sequenced and phased manner with cautious and proper sequencing, mutually reinforcing measures; complimentarily between forms in banking sector and changes in fiscal, external and monetary policies, developing financial infrastructure and developing markets.

The blueprint for banking sector reforms was the 1991 report of the Narasimham Committee. Reform steps taken since then include a deregulation of interest rates, an easing of directed credit rules under the priority sector lending arrangements, a reduction of statutory pre-emptions, and a lowering of entry barriers for both domestic and foreign players. The regulations in India are commonly characterized as "financial repression". The financial liberalization literature assumes that...
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