The Narasimham Committee I was appointed by the Reserve Bank of India (RBI) in 1991 to review the Indian financial system and recommend changes. The committee was chaired by M. Narasimham, a former RBI Governor. The committee’s report was submitted in November 1991 and made several recommendations, including:
Reduction in reserve requirements: The committee recommended reducing the statutory liquidity ratio (SLR) from 38.5% to 25% and the cash reserve ratio (CRR) from 15% to 3-5%. This would provide banks with more funds to lend and help stimulate economic growth.
Liberalization of interest rates: The committee recommended deregulating interest rates so that they could be determined by market forces. This would allow banks to compete for deposits and loans and would lead to more efficient allocation of resources.
Strengthening of bank supervision: The committee recommended strengthening bank supervision by creating a new regulatory body, the Board for Financial Supervision (BFS), to oversee the functioning of banks and financial institutions.
Restructuring of the banking sector: The committee recommended restructuring the banking sector by encouraging mergers and acquisitions, privatization of public sector banks, and entry of new private sector banks.
Development of financial markets: The committee recommended developing financial markets, such as the bond market and the money market, to provide alternative sources of finance and reduce the reliance on bank credit.
Introduction of prudential norms: The committee recommended introducing prudential norms, such as capital adequacy requirements, asset classification, and provisioning norms, to ensure the soundness of the banking system.
The Narasimham Committee I report was a comprehensive and far-reaching reform agenda for the Indian economy and banking system. The recommendations were aimed at improving the efficiency and competitiveness of the banking system, promoting financial stability, and stimulating economic growth. Many of the recommendations were subsequently implemented by the Indian government and the RBI, leading to significant changes in the banking and financial sector in India.