The Narasimham Committee, set up in 1991, made recommendations on:

The first Narasimham Committee, the Committee on the Financial System, was set up in 1991 under M. Narasimham, a former Governor of the Reserve Bank of India, to recommend reforms in the banking and financial sector.

Background:

• In 1991 India faced a serious balance of payments crisis.
• The new government began wide economic reforms in industry, trade and finance.
• The banking sector suffered from low profitability, high non-performing assets and heavy government control.

Main recommendations of the first committee (1991):

• Reduce the Statutory Liquidity Ratio (SLR) and the Cash Reserve Ratio (CRR) in stages.
• Deregulate interest rates.
• Phase out directed credit programmes and reduce priority sector lending targets.
• Introduce prudential norms on capital adequacy, income recognition and asset classification.
• Allow entry of new private sector banks and foreign banks.
• Set up Asset Reconstruction Funds to take over bad loans.
• Create a four-tier banking structure.

Second Narasimham Committee (1998):

• It was called the Committee on Banking Sector Reforms.
• It recommended merging large banks, raising capital adequacy, and reducing government ownership in public sector banks.

Results of the reforms:

• Several new private banks were licensed in the 1990s.
• Prudential norms brought Indian banking closer to international standards.
• Debt Recovery Tribunals were set up to speed up recovery of loans.
• The SARFAESI Act, 2002 allowed banks to recover bad loans by seizing assets.

About M. Narasimham:

He was the only Governor of the RBI who rose from the RBI's own cadre of officers.

Why not the other options?

• ✗Poverty estimation, electoral reforms and direct tax reforms were studied by other committees.