7.
Explanation
The Narsimham Committeee, also known as the Committee on Financial System, was set up in India to recommend financial sector reforms. There were two such committees, one in 1991 and another in 1998, known as Narsimham Committee I and II. Here are the key recommendations from both
committees:
Narsimham Committee I (1991):
1. Reduction in Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR) to free up resources for lending.
2. Deregulation of interest rates to encourage competition and efficiency in the banking sector.
3. Entry of new private sector banks to introduce competition.
4. Strengthening prudential norms for asset classification and income recognition.
5. Introduction of the concept of Non-Performing Assets (NPAs).
6. Recapitalization of public sector banks to improve their financial health.
7. Establishment of Asset Reconstruction Companies (ARCs) to deal with NPAs.
Narsimham Committee II (1998):
1. Recapitalization and reorganization of public sector banks.
2. Phasing out of directed lending programs.
3. Enhancement of the role and autonomy of the Reserve Bank of India (RBI).
4. Entry of new private sector banks with higher capital requirements.
5. Strengthening of the supervisory and regulatory mechanisms.
6. Encouraging consolidation and merger of banks.
7. Introduction of risk-based supervision.
These recommendations aimed to modernize and liberalize the Indian banking sector and enhance its efficiency, stability, and competitiveness.