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.