an in in ndia 12.17
its reports in April 1998, which included the (x) Board for financial Regulation and
following major suggestions:28 Supervisions (BFRS) should be set up
(i) Need for a stronger banking system for the whole banking, financial and the
for which mergers of the PSBs and NBFCs in India.29
the financial institutions (AIFIs) were
suggested—stronger banks and the DFIs Dri
(development financial institutions, i.e., The differential rate of interest (DRI) is a lending
AIFIs) to be merged while weaker and programme launched by the government in April
unviable ones to be closed. 1972 which makes it obligatory upon all the
(ii) A 3-tier banking structure was suggested public sector banks in India to lend 1 per cent
after mergers: of the total lending of the preceding year to ‘the
(a) Tier-1 to have 2 to 3 banks of poorest among the poor’ at an interest rate of 4
international orientation; per cent per annum.
(b) Tier-2 to have 8 to 10 banks of
national orientation; and
Priority sector lenDing
(c) Tier-3 to have large number of local All Indian banks have to follow the compulsory
banks. target of priority sector lending (PSL). The
The first and second tiers were to take priority sector in India are at present the sectors—
care of the banking needs of the corporate agriculture, small and medium enterprises
sector in the economy. (SMEs), road and water transport, retail trade,
small business, small housing loans (not more
(iii) Higher norms of Capital-to-Risk—
than Rs. 10 lakhs), software industries, self help
Weighted Adequacy Ratio (CRAR)
groups (SHGs), agro-processing, small and
suggested—increased to 10 per cent.
marginal farmers, artisans, distressed urban poor
(iv) Budgetary recapitalisation of the PSBs is and indebted non-institutional debtors besides the
not viable and should be abandoned. SCs, STs and other weaker sections of society.30
(v) Legal framework of loan recovery should In 2007, the RBI included five minorities—
be strengthened (the government passed Buddhists, Christians, Muslims, Parsis and Sikhs
the SARFAESI (Act, 2002). under the PSL. In its new guidelines of March
(vi) Net NPAs for all banks suggested to be 2015, the RBI added ‘medium enterprise, sanitation
cut down to below 5 per cent by 2000 and renewable energy’ under it.31 The PSL target
and 3 per cent by 2002. must be met by the banks operating in India in
(vii) Rationalisation of branches and staffs of the following way:
the PSBs suggested.
29. An integrated system of regulation and supervision
(viii) Licencing to new private banks (domestic was suggested by the Committee so that soundness of
as well as foreign) was suggested to the financial system could e ensured the concept of
a financial super-regulator gets vindicated, as opines
continue with. Y. V. Reddy, in Lecturers on Economic and Financial
(ix) Banks’ boards should be depoliticised Sector Reforms in India, 38.
under RBI supervision. 30. See Publication Division, India 2007 (New Delhi:
Government of India, 2008) and Economic Survery,
28. Based on the Report of the Committee on Banking Sector 2006-07.
Reforms, April 1998 (Chairman: M. Narasimham). 31. RBI, New Guidelines on the PSL, 2 March, 2015.