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Critique on Indian Banking Reforms in 1991

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Critique on Indian Banking Reforms in 1991
1. Critique on banking sector reforms in post 1991 period
The Future of Banking Reform Prior to the economic reforms, the financial sector of India was on the crossroads. To improve the performance of the Indian commercial banks, first phase of banking sector reforms were introduced in 1991 and after its success; government gave much importance to the second phase of the reforms in 1998. Uppal (2011) analyzes the ongoing banking sector reforms and their efficacy with the help of some ratios and concludes the efficacy of all the bank groups have increased but new private sector and foreign banks have edge over our public sector bank. 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 etc., our country too embarked upon economic reforms. The govt. 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 main recommendations of the Committee were: -
•Reduction of Statutory Liquidity Ratio (SLR) to 25 per cent over a period of five years
•Progressive reduction in Cash Reserve Ratio (CRR)
•Phasing out of directed credit programmes and redefinition of the priority sector
•Deregulation of interest rates so as to reflect emerging market conditions
•Stipulation of minimum capital adequacy ratio of 4 per cent to risk weighted assets by March 1993, 8 per cent by March 1996, and 8 per cent by those banks having international operations by March 1994
•Adoption of uniform accounting practices in regard to income recognition, asset classification and provisioning against bad and doubtful debts
•Imparting transparency to bank balance sheets

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