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Kerala PSC Indian Economy Book Study Materials Page 338Book's First Page
12.14 ndian onom process of banking reforms) are still to be economy.22 Accordingly, a high level committee on this sector. Financial System (CFS) was set up on 14 August, Co-operative banks have been in news mostly 1991 to examine all aspects relating to structure, for fraudulent deals. Due to multiplicity of organisation, function and procedures of the regulatory control of the federal nature it becomes financial system—based on its recommedations, a really difficult to comply these banks to the comprehensive reform of the banking system was prudential norms. Meanwhile, the Government of introduced in the fiscal 1992–93.23 India decided (in the Union Budget 2017-18) to The CFS based its recommendations on certain bring the co-operative banks into the ambit of the assumptions 24 which are basic to the banking ‘core banking’ structure. Under the core banking industry. And the suggestions of the committee solution (CBS), customers are able to avail banks’ became logical in light of this assumption, there services across all of the branches rather the branch is no second opinion about it. The assumption where the account is—making them customers of says that “the resources of the banks come from the bank rather than of a branch. the general public and are held by the banks in trust that they are to be deployed for maximum FInancIal sector reForMs benefit of the depositors”. This assumption automatically implied: The process of economic reforms initiated in (i) That even the government had no 1991 had redefined the role of government in the business to endanger the solvency, economy—in coming times the economy will be health and efficiency of the nationalised dependent on the greater private participation banks under the pretext of using banks, for its development.21 Such a changed view to resources for economic planning, social development required an overhauling in the banking, poverty alleviation, etc. investment structure of the economy. Now the private sector was going to demand high investible (ii) Besides, the government had no right capital out of the financial system. Thus, an to get hold of the funds of the banks emergent need was felt to restructure the whole at low interest rates and use them for financial system of India. financing its consumption expenditure (i.e., revenue and fiscal deficits) and thus The three decades after nationalisation had defraud the depositors. seen a phenomenal expansion in the geographical coverage and financial spread of the banking The recommendations of the CFS system in the country. As certain weaknesses were (Narasimham Committee I) were aimed at: found to have developed in the system during (i) ensuring a degree of operational flexibility; the late eighties, it was felt that these had to be addressed to enable the financial system to play its role ushering in a more efficient and competitive 22. Announced by the government while setting up the M. Narasimham Committee on Finacial System on 14 August, 1991. See also Publication Division, India 2011 (New Delhi: Government of India, 2002). 21. Repeated by the Government of India many times, i.e., 23. The Narasimham Committee handed over its report in the New Industrial Policy 1991; the Union Budget record time within 3 months after it was set up. 1992–93; Eighth Five Year Plan (1992–97) Draft 24. Reserve Bank of India, Committee on Financial Approach; etc. Systems, 1991.