Page 84 - DMGT303_BANKING_AND_INSURANCE

Unit 4: Treasury Management & Banking Sector Reforms

(iv) RRBs should be allowed to engage in all types of banking business, but major focus Notes
should continue to be to lend to the target groups.
(v) The move towards this revised system should be market driven and based on
profitability considerations.
(vi) A process of mergers and acquisitions will help to attain the above.
(vii) The interest rate structure of the RRBs should be in line with those of the commercial
banks.

Did u know? The Government of India constituted a Committee under the Chairmanship
of Sh. M. Narasimham, former governor, Reserve Bank of India to examine the structure
and functioning of the existing financial system of India and suggest suitable reforms.

4.11 Measures Taken to Improve the Banking System

In pursuance of the recommendations of the Narasimham Committee, the following measures
have been taken to reform the Indian banking system.
1. Capital adequacy norms (explained above)
2. Prudential (sound, careful and sensible) accounting norms
3. Recapitalisation (adopting a new capital structure)

4. Recovery of debts
5. Partial privatisation of public sector banks
6. Freedom to open branches
7. Entry of private sector banks in Indian banking sector

8. Department of Supervision (RBI)
9. Banking Ombudsman (independent authority for dispute settlement) Scheme
10. Board for Financial Supervision (RBI)
11. Scheme of disclosure regarding defaulting borrowers

12. Central Board of Bank Frauds
13. Consortium arrangement (Joint financing arrangements)
14. Liberalisation of lending norms
15. Measures to streamline working of banks

Some special Measures:
1. Liberal Credit Control Measures: Statutory liquidity ratio on incremental net demand and
time liabilities has been reduced to 25 per cent (see latest figures also).

(i) Banks permitted to fix their deposit and lending rates.
Freedom to invest in corporate shares, debentures and units of mutual funds not
exceeding 5 per cent of their incremental deposits (see latest figures too.).

(ii) Banks can also purchase shares and debentures of companies from the secondary
market.

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