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.