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[1991]
1. RECOMMENDATIONS OF NARASIMHAM COMMITTEE
1. Four tier hierarchy for banking structure: 3 to 4 large banks (including SBI) at
top and at bottom rural banks engaged in agricultural activities.
2. The supervisory functions over banks and financial institutions can be
assigned to a quasi-autonomous body sponsored by RBI.
3. Phased reduction in statutory liquidity ratio.
4. Phased achievement of 8% capital adequacy ratio.
5. Abolition of branch licensing policy.
6. Proper classification of assets and full disclosure of accounts of banks and
financial institutions.
7. Deregulation of Interest rates.
8. Delegate direct lending activity of IDBI to a separate corporate body.
9. Competition among financial institutions on participating approach.
10.Setting up asset Reconstruction fund to take over a portion of loans with
difficult recovery.
2. Prudential Norms
Prudential norms have been started by RBI in order to impart professionalism in
commercial banks. Prudential norms include disclosure of income, classification of
assets and provision for Bad debts to ensure that the books of commercial banks
reflect the accurate and correct picture of financial position.
Prudential norms required banks to make 100% provision for all Non-performing
Assets (NPAs). Funding for this purpose was placed at INR 10,000 Crores [phased
over 2 years].
Capital Adequacy ratio is the ratio of minimum capital to risk asset ratio. In April
1992, RBI fixed CAN at 8%. By March 1996, all public sector banks had attained the
ratio of 8%. It was also attained by foreign banks.
9. Freedom of Operation
Scheduled Commercial Banks are given freedom to open new branches and
upgrade extension counters, after attaining capital adequacy ratio and prudential
accounting norms. The banks are also permitted to close non-viable branches other
than in rural areas.
10.
In 1996, RBI issued guidelines for setting up of Local Area Banks and it gave its
approval for setting up of 7 LABs in private sector. LABs will help in mobilizing rural
savings and in channelling them in to investment in local areas.
11.
The RBI has set up a Board of financial Supervision with an advisory Council to
strengthen the supervision of banks and financial institutions. In 1993, RBI
established a new department known as Department of Supervision as an
independent unit for supervision of commercial banks.
New Areas
New areas for bank financing have been opened up, such as: Insurance, credit cards,
asset management, leasing, gold banking, investment banking etc.
2.
New Instruments
For greater flexibility and better risk management new instruments have
been introduced such as: Interest rate swaps, liquidity adjustment facility for
meeting day-to-day liquidity mismatch.
3.
Risk Management
Strengthening Technology
For payment and settlement system technology infrastructure has been
strengthened with electronic funds transfer, centralized fund management
system, etc.
7. Universal banking
Universal banking refers to combination of commercial banking and investment banking.
For evolution of universal banking guidelines have been given.
9. Information Technology
Banks have introduced online banking, E-banking, internet banking, telephone banking
etc. Measures have been taken facilitate delivery of banking services through electronic
channels.
10.
Management of NPAs
RBI and central government have taken measures for management of non-performing
assets (NPAs), such as corporate Debt Restructuring (CDR), Debt Recovery Tribunals
(DRTs) and Lok Adalats.
11.
In May 2005, RBI has issued guidelines for merger and Amalgamation of private sector
banks.
12.
13.
Managerial Autonomy
In February. 2005, the Government of India has issued a managerial autonomy package
for public sector banks to provide them a level playing field with private sector banks in
India.
14.
Customer Service
In recent years, to improve customer service, RBI has taken many steps such as Credit
Card Facilities, banking ombudsman, settlement of claims of deceased depositors etc.
15.
In 2003 the system of Benchmark Prime Lending Rate (BPLR) was introduced to serve
as a benchmark rate for banks pricing of their loan products so as to ensure that it truly
reflected the actual cost. However the BPLR system tell short of its objective. RBI
introduced the system of Base Rate since 1st July, 2010. The base rate is the minimum
rate for all loans. For banking system as a whole, the base rates were in the range of
5.50% - 9.00% as on 13th October, 2010.