Narasimham Committee I (Committee on Financial System reforms) – 1991 - for BA, UPSC, PSC & KAS

Introduction

This tutorial provides a comprehensive overview of the Narasimham Committee I, established in 1991, which focused on banking sector reforms in India. Understanding the committee's recommendations is crucial for students preparing for exams like UPSC, PSC, and KAS, as well as for those studying macroeconomics and economics in general.

Step 1: Understand the Background of the Narasimham Committee

• The Narasimham Committee was formed against the backdrop of India's New Economic Policy (NEP) and Liberalization, Privatization, and Globalization (LPG) initiatives.
• Key reasons for its establishment included:
  • The need for a more efficient banking system.
  • The challenges faced by public sector banks.
  • The necessity to enhance the competitiveness of Indian banks in a globalized economy.

Step 2: Familiarize Yourself with the Committee's Objectives

• The main objectives of the Narasimham Committee included:
  • Strengthening the financial system.
  • Improving the efficiency and soundness of banks.
  • Ensuring better access to financial services for the public.
• These objectives aimed to align the banking sector with international standards.

Step 3: Explore Key Recommendations of the Committee

• The committee made several significant recommendations, including:
  1. Financial Deregulation:
     • Allowing banks to determine interest rates based on market conditions.
  2. Prudential Norms:
     • Establishing guidelines for asset classification and provisioning.
  3. Capital Adequacy:
     • Recommending a minimum capital requirement for banks to enhance stability.
  4. Banking Sector Reforms:
     • Suggesting the restructuring of public sector banks to improve efficiency.

Step 4: Analyze the Impact of the Recommendations

• The implementation of the Narasimham Committee's recommendations led to:
  • Increased efficiency in the banking sector.
  • Enhanced competitiveness among banks.
  • A shift towards a more market-driven economy.
• Understanding these impacts is vital for grasping the evolution of India’s financial system.

Step 5: Recognize the Implications for Future Reforms

• The Narasimham Committee laid the groundwork for subsequent reforms in the banking sector.
• Recognizing the ongoing need for reform helps understand current banking trends and policies.

Conclusion

The Narasimham Committee I was a pivotal moment in the evolution of India's banking sector, aimed at transforming it into a more robust and competitive framework. For students and aspirants, grasping these concepts not only aids in exams but also provides insights into the broader economic landscape of India.

Next steps include reviewing additional resources on the committee's impact and staying updated on current banking reforms in India. For further study, consider exploring the committee's recommendations in detail and their application in real-world banking scenarios.