Important recommendations of the Narasimham Committee (1998) on Banking Sector are as follows:

i. The committee has made out a strong case for a stronger banking system in the country especially in the context of Capital Account Convertibility (CAC) which would involve large inflows and outflows of capital and consequent complications for exchange rate management and domestic liquidity. For this purpose the committee has recommended the merger of strong “banks which will have a multiplier effect on industry. The committee has however, cautioned the merger of strong and weak banks, as this may have a negative impact on the assets quality of the stronger bank. It has also supported that two or three large Indian banks be given international or global character.

ii. The setting up of small local banks which would be confined to states or cluster of districts in order to serve local trade, small industry, and agriculture.

iii. Higher capital adequacy requirements for banks and the setting up of an Asset Reconstruction Fund (ARF) to take over the bad debts of the banks.

ADVERTISEMENTS:

iv. The committee has considered the issue of dutonomous status of the Board for Financial Supervision of RBI and the need to segregate regulatory and supervisory function of RBI. It expressed the need for RBI to maintain in an arms’ length form those being regulated and hints at the need for withdrawing RBI nominee for bank boards.

v. The committee has suggested the urgent need to review and amend the provisions of RBI Act, Banking Regulation Act, Bank Nationalisation Act, State Bank of India Act, etc. So, as to bring them in line with the current need of the banking sector. Other recommendations relate to the need for computerisation process in public sector banks, professionalising and depoliticising bank board, review “of recruitment procedures, training and remuneration policies.