12.16         ndian    onom
     4. On Structural Reorganisation of the Bank           bank employees and the trade unions, the report
     For the structural reorganisation of banks some       adds. The recommendations were revolutionary
     major suggestions were given:                         in many respects and were opposed by the bank
                                                           unions and the leftist political parties.
           (i) Substantial reduction in the number
               of the PSBs through mergers and                   There were some other major suggestions of
               acquisitions—to bring about greater         the committee which made it possible to get the
               efficiency in banking operations;           following26 things done by the government:
          (ii) Dual control of RBI and Banking Division          (i) opening of new private sector banks
               (of the Ministry of Finance) should go                 permitted in 1993;
               immediately and RBI to be made the               (ii) prudential norms relating to income
               primary agency for the regulation of the               recognition, asset classification and
               banking system;                                        provisioning by banks on the basis of
        (iii) The PSBs to be made free and autonomous;                objective criteria laid down by the RBI;
         (iv) The RBI to examine all the guidelines and        (iii) introduction of capital adequacy norms
               directions issued to the banking system                (i.e., CAR provisions) with international
               in the context of the independence and                 standard started;
               autonomy of the banks;                          (iv) simplification in the banking regulation
          (v) Every PSB to go for a radical change in                 (i.e., via board for financial supervision in
               work technology and culture, so as to                  1994); etc.
               become competitive internally and to be
               at par with the wide range of innovations      BankIng sector reForMs
               taking place abroad; and
                                                           The government commenced a comprehensive
         (vi) Finally, the appointment of the Chief
                                                           reform process in the financial system in 1992–93
               Executive of Bank (CMD) was suggested
               not to be on political considerations       after the recommendations of the CFS in 1991.
               but on professionalism and integrity.       In December 1997 the government did set up
               An independent panel of experts was         another committtee on the banking sector reform
               suggested which should recommend and        under the chairmanship of M. Narasimham.27
               finalise the suitable candidates for this   The objective of the committee is objectively clear
               post.                                       by the terms of reference it was given while setting
     5. Asset Reconstruction Companies/Fund                      “To review the progress of banking sector reforms
     To tackle the menace of the higher non-               to date and chart a programme of financial sector
     performing assets (NPAs) of banks and financial       reforms necessary to strengthen India’s financial
     institutions, the committee suggested setting up      system and make it internationally competitive”
     of asset reconstruction companies/funds (taking             The Narasimham Committee-II (popularly
     clue from the US experience).                         called by the Government of India) handed over
           The committee directly blamed the
                                                             26.    Based on Y.V. Reddy, Lectures on Economic and
     Government of India and the Ministry of Finance                Financial Sector Reforms in India, 2002.
     for the sad state of affairs of the PSBs. These banks   27.    Ministry of Finance, Economic Survey 1998–99, (New
     were used and abused by the GoI, the officials, the            Delhi: Government of India, 1999).