The Government of India constituted a nine member committee under the chairmanship of Mr. M. Narasimham, retired RBI Governor, on August 14, 1991 for making recommendations on existing financial system and to give suggestions for improving the existing structure. The committee submitted its report to the Finance Minister in November 1991 which was placed on the table of Parliament on December 17, 1991.
The salient recommendations are:
- Four tier Banking System should be introduced in the country
I tier 3 or 4 International Banks
II tier 8 to 10 National Banks
III tier Regional Banks
IV tier Rural Banks
- Branch licensing system for opening new bank branches should be abolished.
- A liberal view should be adopted for allowing foreign banks in the country. Both domestic and foreign banks should be treated at par.
- SLR for banks should be curtailed to the level of 25% within next 5 years. CRR should also be curtailed in various phases.
- Banks should be given more autonomy and the directed credit should be abolished.
- Primary targets for credit should be redefined and such credits should not be more than 10% of total credit.
- Computerisation in banks should be promoted.
- Banks should be authorised to appoint banking officials at their own discretion.
- The duel control RBI and Finance Ministry on banks should be abolished and RBI should function only as a regulatory authority of banking system in the economy.
- RBI's representative should not be included in the management board of banks. Only Government representative should be there.
- Granting resources to development finance institutions on concessional rates of interest should be abolished in phases within next three years. These institutions should be allowed to mobilise resources from open market on competitive rates.
- Quick and effective liberal attitude should be adopted in the policy related to capital market. System of getting prior permission by the companies for their new share issues should be abolished.