{"id":68217,"date":"2025-10-11T17:08:21","date_gmt":"2025-10-11T11:38:21","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=68217"},"modified":"2025-10-11T17:08:21","modified_gmt":"2025-10-11T11:38:21","slug":"narasimham-committee","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/narasimham-committee\/","title":{"rendered":"Narasimham Committee, History, Recommendations, Importance"},"content":{"rendered":"

The Narasimham Committee, established in 1991, marked a watershed moment in the evolution of India\u2019s banking and financial sector. In the wake of economic liberalisation, India faced the dual challenge of reviving economic growth while improving the efficiency, competitiveness, and stability of its banking institutions. Recognising these imperatives, the then Finance Minister of India constituted a high-powered committee under the leadership of M. Narasimham, a former Governor of the Reserve Bank of India, to evaluate the financial sector and recommend reforms to make Indian banks more resilient, efficient, and globally competitive. In this article, we are going to cover Narasimhan Committee 1 & 2, its historical background, reforms, recommendations, challenges and importance.\u00a0<\/span><\/p>\n

Narasimhan Committee<\/span><\/h2>\n

The Narasimham Committees of 1991 and 1998 were important in transforming India\u2019s banking landscape. They addressed critical structural inefficiencies, strengthened regulation, and promoted professional management in banks. By introducing reforms in NPAs, capital adequacy, ownership structures, and regulatory frameworks, these committees laid the groundwork for a competitive, resilient, and globally aligned banking system.<\/span><\/p>\n

A second Narasimham Committee was later formed in 1998 to address emerging challenges and ensure that India\u2019s banking system remained robust amid evolving domestic and international economic conditions. Both committees have played an important role in shaping the modern Indian banking landscape, influencing regulatory frameworks, policy decisions, and banking practices.<\/span><\/p>\n

Narasimhan Committee Historical Background<\/span><\/h2>\n

India underwent a big economic crisis in 1991, marked by a balance of payments deficit and dwindling foreign exchange reserves. The country faced an urgent need to stabilise its economy, liberalise trade, and improve industrial productivity. Amid this backdrop, the performance of the banking sector was identified as an important constraint. Public sector banks, which dominated the financial system, were inefficient, burdened with high non-performing assets (NPAs), and constrained by outdated regulatory mechanisms.<\/span><\/p>\n

It became evident that the banking sector needed a comprehensive overhaul to support economic growth and strengthen financial intermediation. Banks were expected to play a more proactive role in funding industry, agriculture, and infrastructure, while also managing risks efficiently. Recognising this, Dr. Manmohan Singh<\/strong><\/a>, then Finance Minister, formed the Narasimham Committee in August 1991 to recommend reforms for a modern, competitive banking system.<\/span><\/p>\n

Narasimham Committee I (1991)<\/span><\/h2>\n

The first Narasimham Committee consisted of nine members and was tasked with assessing the structure, functioning, and organisation of Indian banks. The committee submitted its report on November 16, 1991, which was subsequently reviewed by the Parliament on December 17, 1991. Its recommendations laid the foundation for liberalisation in banking and aimed at improving efficiency, competitiveness, and financial stability.<\/span><\/p>\n

Key Recommendations of Narasimham Committee I:<\/span><\/h3>\n
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  1. Phasing Out Directed Credit Programmes<\/b>\n