Banking Sector Reforms in India: Narasimhan Committee 1&2, Nachiket Mor Committee, P J Nayak Committee.

Banking sector reforms in India have been pivotal in modernizing the financial system, improving efficiency, and enhancing the stability of the sector. Several committees have played a crucial role in recommending changes and reforms. Here’s an overview of the key committees and their contributions:

1. Narasimhan Committee I (1991)

Chairman: M. Narasimham

Background: The Narasimhan Committee I was established in 1991 during a period of economic liberalization. The committee was tasked with examining the state of the banking sector and recommending measures for its reform.

Key Recommendations:

• Banking Sector Liberalization: Suggested reforms to enhance the efficiency and competitiveness of the banking sector.
• Capital Adequacy: Recommended improving capital adequacy norms to ensure that banks maintained sufficient capital to cover their risks.
• Asset Quality: Emphasized the need for better management of non-performing assets (NPAs) and improved asset quality.
• Regulatory Framework: Suggested strengthening the regulatory framework and enhancing the role of the Reserve Bank of India (RBI) in supervision.
• Public Sector Banks: Recommended restructuring public sector banks to improve their efficiency and performance.

Impact:

• Introduction of Basel Norms: Led to the adoption of Basel I norms, setting standards for capital adequacy.
• Improved Regulation: Strengthened the regulatory framework and supervision of banks.

2. Narasimhan Committee II (1998)

Chairman: M. Narasimham

Background: The Narasimhan Committee II was established in 1998 to further review the banking sector reforms and assess the progress made since the first committee's recommendations.

Key Recommendations:

• Financial Sector Reforms: Recommended a comprehensive approach to financial sector reforms, including banking, insurance, and securities.
• Corporate Governance: Emphasized the need for improved corporate governance practices in banks.
• Banking Sector Restructuring: Suggested measures for restructuring and modernizing public sector banks.
• Prudential Norms: Recommended adopting more rigorous prudential norms for risk management and financial stability.
• Financial Inclusion: Highlighted the importance of financial inclusion and suggested measures to improve access to banking services for underserved areas.

Impact:

• Basel II Implementation: Led to the adoption of Basel II norms, which included more detailed guidelines on risk management and capital adequacy.
• Strengthened Governance: Improved corporate governance practices in banks and strengthened financial stability.

3. Nachiket Mor Committee (2014)

Chairman: Nachiket Mor

Background: The Nachiket Mor Committee was established in 2014 to review the existing structure of the Indian banking sector and recommend measures for enhancing financial inclusion and access to banking services.

Key Recommendations:

• Universal Banking: Recommended the creation of a more inclusive and accessible banking system through the establishment of universal banks.
• Financial Inclusion: Emphasized the need for a comprehensive strategy to enhance financial inclusion, particularly in rural and underserved areas.
• Payment and Settlement Systems: Suggested improvements in payment and settlement systems to facilitate smoother and more efficient transactions.
• Small Finance Banks: Recommended the establishment of small finance banks to cater to the financial needs of small businesses and underserved segments.

Impact:

• Introduction of Small Finance Banks: Led to the establishment of small finance banks to enhance financial inclusion.
• Strengthened Financial Inclusion: Promoted initiatives and policies to improve access to banking services for all segments of society.

4. P.J. Nayak Committee (2014)

Chairman: P.J. Nayak

Background: The P.J. Nayak Committee was established in 2014 to review the governance structure of public sector banks and recommend measures for improving their performance and efficiency.

Key Recommendations:

• Governance Reforms: Suggested comprehensive reforms in the governance structure of public sector banks, including the appointment of independent directors and improved board functioning.
• Autonomy: Recommended increasing the autonomy of public sector banks to enhance their operational efficiency and decision-making capabilities.
• Accountability: Emphasized the need for better accountability and transparency in the management of public sector banks.
• Performance Metrics: Suggested implementing performance metrics and benchmarks to assess the effectiveness of public sector banks.

Impact:

• Governance Changes: Led to discussions and policy changes aimed at improving the governance and management of public sector banks.
• Enhanced Autonomy: Increased focus on granting more autonomy to public sector banks to improve their operational efficiency.

Summary Table

Committee	Year	Key Recommendations	Impact
Narasimhan Committee I	1991	Banking sector liberalization, capital adequacy, asset quality, regulatory framework	Adoption of Basel I norms, improved regulation
Narasimhan Committee II	1998	Financial sector reforms, corporate governance, bank restructuring, prudential norms	Adoption of Basel II norms, strengthened governance
Nachiket Mor Committee	2014	Universal banking, financial inclusion, payment systems, small finance banks	Establishment of small finance banks, improved financial inclusion
P.J. Nayak Committee	2014	Governance reforms, autonomy for public sector banks, accountability	Improved governance and autonomy for public sector banks