The Narasimham Committee, chaired by M. Narasimham, was appointed by the Government of India to assess and suggest reforms for the financial sector. The committee`s recommendations were instrumental in shaping the financial sector reforms in India during the 1990s.
The committee submitted two reports, commonly known as the Narasimham Committee I and Narasimham Committee II, in 1991 and 1998, respectively. These reports provided comprehensive assessments of various aspects of the financial system, including banking, non-banking financial institutions, capital markets, and insurance.
The Narasimham Committee I made several significant recommendations, such as the reduction of statutory liquidity ratio (SLR) and cash reserve ratio (CRR), liberalization of branch licensing policies, and the introduction of prudential norms for banks. These recommendations aimed to promote competition, efficiency, and stability in the banking sector.
The committee`s second report, Narasimham Committee II, focused on further strengthening the financial sector reforms initiated earlier. It proposed measures to enhance the efficiency, stability, and competitiveness of the banking system. The report recommended measures such as the introduction of capital adequacy norms (based on Basel Accord guidelines), asset classification and provisioning norms, and the formation of asset reconstruction companies (ARCs) to address the issue of non-performing assets (NPAs).
The recommendations of the Narasimham Committee played a crucial role in shaping the financial sector reforms in India. The government implemented many of the suggested measures to liberalize and restructure the financial system, leading to significant changes in the banking, insurance, and capital market sectors. These reforms aimed to strengthen the financial sector, improve financial inclusion, and enhance the overall stability and efficiency of the Indian economy.