The First major reform for banking sector in India was with conversion of imperial bank as

State Bank of India. The banking reformed progressed with Nationalization of 14 banks in
the year 1969. The year 1991 saw India moving towards market economy with introduction
of New Economic Policy and a spate of reforms in banking sector to supplement the policy
and market economy. The migration to market linked competitive economy policy
warranted major reforms in the banking sector as banking sector was one of the major
vehicle for success of the new policy measures. All out emphasis was placed on bringing
Indian banking practices at equal footing similar to global banking practices.

The banking sector saw spate of reforms after 1991 and more specifically after
recommendations of the Narsimhan Committee who were tasked with suggesting a road
map for banking sector reform in India. The committee has through its recommendations in
1991 and later in 1998 suggested structural reforms for the banking sectors to strengthen
banking operations in Indian Financial Sector. The Major recommendation included

Key Suggestions: Narshimhan-I-1991

Reduction in CRR and SLR

Phasing out Directed Credit Programmes
Interest Rate Deregulation
Structural Reorganization of Banks (3 large banks with international presence, 8-
10 national banks, multiple regional and local banks)
Change in the Control Structure of Banks (Govt. Equity to come down to 33%)
Establishment of ARF tribunal
Change in Classification of Assets
Allowing Banks to raise Capital
Liberalization of Capital Markets

Key Suggestions: Narshimhan-II-1998

Need for a Stronger Banking System

Need to Bring NPA to Lower Level (the NPAs to be brought down to 3% by 2002.
NPA issues remain a sore point for Indian Banking System with NPA at 9.1% in
Sep 2016 and the stressed asset at 12.3%)
 Capital Adequacy Ratio to 9% by 2000 and 10% by 2002 (At end-June 2016 the
total capital adequacy ratio (CAR) for 11 banks was at or lower than the
minimum of 11.5% required by end-March 2019 (FYE19), Fitch said in its report.
Of the 11, six did not have enough capital to meet the minimum required 10.25%
by 31 March 2017)
Autonomy to Banks GOI equity in nationalized banks be reduced to 33% for
increased autonomy
Review of banking laws to bring them to International Practices

The banking practices has consistently adopted itself to new challenges and moved
diligently opting for various reforms measures suggested by expert committee on banking
reforms. The progress has been impressive. The global financial crisis of 2008 that saw
global financial crisis involving global banks and their failure has also witnessed the
resilience of Indian banking sector as it was one of the positive spot during the of financial
crisis of 2008.

This spoke volume about the competitiveness and adoption of prudent banking practise and
compliance in Indian. However it would be wrong to assume that all is well with Indian
Banking System and further perusal of banking reforms are not warranted.

In the context of the present local and global environment and the need for a robust
banking practices mechanism for future economic growth, the Indian Banks are at cross
road on Banking Sector Reforms. There are a lot to be done as the reforms are yet a niche
field owing to the challenges on

Deceleration in economic growth impacting expansion of banking sector

Maintaining asset quality in the face of growing non-performing assets and

restructuring of advances

Augmenting capital and maintaining prudential capital

Preserving and augment profitability in a stressed environment

Implementing financial inclusion & Direct Benefits Transfer

 Increased competition from both within the banking sector with various banks
becoming aggressive

Adopting and adapting to technological changes/innovation to meet regulatory

norms and tap alternative channels

Improving quality of human resources for working efficiently under the latest
technological developments

It is required that the banking sector should look forward to fresh reforms on the
following measures

Stringent norms pertaining to bad loans and restructured assets and their
resolution

Consolidation and mergers and entry of new players

Continuous bank licensing

Converting some urban coop banks into commercial banks

Separate licences for niche areas like wealth management investment banking

Reforms in corporate debt market, government debt market & money market

Focus on assetliability management for banks

Increased usage of technology in banking

Focus on financial inclusion/deepening

Steps to remove structural bottlenecks on credit delivery and free pricing of

financial assets

Transparency, improvement in clearing and settlement practices

Reforms aimed at creating liquidity and depth for efficient price discovery
of banking products

These measure will result into

Norms on NPA to improve asset quality, recovery, liquidity and the balance sheets of
banks
 Consolidation of banks & new players to bring competition, innovation and
productivity. It would also bring economies of scale

Conversion of Urban banks into commercial banks could aid them to operate in
mainstream with lower risk.

Higher technology usage to help in upgradation, design more e-products; also

sustain and scale business

Financial deepening to make banking more inclusive, improve geographical

coverage, reduce regional imbalances and credit to the unorganised sector

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better autonomy for commercial banks, structural changes in the role of RBI, stronger banking
system and process, Opening of Banking to Private Players, merger of large Indian PSU Banks, raising
capital adequacy compliance and recapitalization, Prudential Accounting norms, Asset Liability
Management System, A stricter measure to restrict NPA, Better Risk Management, Technological
Enhancement in Banking Services.

Banks need a 2.5cr capital infusion before March 2019 to

Basel 3 normy

meet BASEL 3 norms .psb which account for over 70 % 0f banking

system in india faces concern regarding their profitability,assest
quality,capital position and governance despite several measures
taken to distress the sector .out of which 70000cr 0f capital infusion
in public sector is announced by the government under their
Indradhanush plan .rest is expected to raise from the market which
they will find it difficult due to poor performance. .strategic debt
restructuring to improve

Bank credit growth has fallen to single digit and unfortunately

increase in profit has been due to growth of operating expenses
rather than rise in growth of income.
 The overall impaired loan (NPA) and restructured Asset in the banking
sector increased to 11.3% in September 2015 compared to 9.9% in
2014 and 3.4% in 2008 with Public Sector Banks having a higher share

Banks Have extended a higher credit to the sectors that have high
leverage and weak debt servicing capacity, putting further strain on
asset quality of the bank.cases of Bad Loans and wilful defaulters had
piled up in Public Sector Banks Partly due to manner in which these
banks operate. They are forced to lend excessively to unviable
infrastructure projects which need to be monitored.

Just as Building more schools doesnt improve literacy rate, opening

accounts does not empower citizens. These schemes are truly a
burden on banks operating costs. Efforts are being made to make
Banking premises less Paperless and currency less.

Governments Failure to address the banking sector problem will make

the economy pay a huge cost since healthy banking system is a
necessity for an aspiring economy.

Thank You

1. New accounting systems

2. Deregulation of interest rate
3. Sufficient infrastructure