Indian Economy · Economy0028
Financial-Sector Committees: Who Proposed What?
A committee studies a problem and recommends changes. The government or a regulator must act before a proposal becomes policy.
This guide pairs each report with the change that followed. A recommendation is not a law. Some proposals were accepted only in part.
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Timeline: 1985 to 2015
1. Find the problem before memorising the chair
| Years | Committee | Main problem | Policy trail |
|---|---|---|---|
| 1985–87 | Chakravarty; Vaghul | Money control; short-term funding | Money targets; new market instruments |
| 1991–98 | Narasimham I and II | Weak banks and bad loans | Stronger rules; private banks; asset reconstruction |
| 1993–98 | Malhotra; Khan; Gupta; Tarapore | Insurance, bank roles, market risk, capital flows | Regulator, licensing, derivatives, gradual opening |
| 2008–11 | Rajan; Malegam | Financial access; microfinance distress | Selective reforms; NBFC-MFI rules |
| 2013–15 | Patel; Mor; Nayak; Mohanty | Inflation, inclusion, bank boards | MPC; new bank types; partial governance changes |
Recommendation ≠ rule: A report can propose a target. Only a later official action can put it into force.
Sources: RBI banking history; IRDAI history; RBI monetary history.
QUICK CHECK 1 OF 6 · TRUE OR FALSE
Was the Malhotra insurance committee formed under IRDAI?
No. The committee reported before the regulator existed.
Show answer
False. No. The committee reported before the regulator existed.
Must Know: The Four Committees
1. 1991 · M. Narasimham I: make banks sound
Problem: Banks carried hidden weak loans. High reserve duties also left less money to lend.
Proposed: Lower reserve requirements. Set clear bad-loan and capital rules. Allow more private and foreign banks.
A bank needs capital to absorb losses. A non-performing asset (NPA) is a loan with seriously overdue payments.
Result: RBI introduced stronger loan and capital standards in stages. New private-bank licensing began in 1993.
The suggested 10% priority-lending target was not accepted. Priority lending serves groups such as farmers and small firms.
2. 1998 · M. Narasimham II: repair the next weakness
Problem: Bad loans still weakened banks. Board independence and recovery also needed work.
Proposed: Stronger capital and loan provisions, better recovery, professional boards, and sensible mergers.
Result: RBI raised the minimum capital ratio to 9% from March 2000. It also tightened loan provisions.
Asset reconstruction companies later bought troubled loans. The proposed central Asset Reconstruction Fund was not created.
3. 1997 · S. H. Khan: banks and development lenders
Problem: Banks took deposits. Development finance institutions (DFIs) supplied long-term project funds. Their roles were converging.
Proposed: Let sound banks and DFIs explore useful mergers. Allow a clearer route toward universal banking.
Universal banking combines several financial services in one regulated bank.
Result: Some institutions later converted or merged. RBI assessed each case under its licensing and safety rules.
4. 2014 · P. J. Nayak: who controls public banks?
Problem: Government ownership and daily control could blur responsibility for public-sector bank decisions.
Proposed: Empower professional boards. Change appointment practices. Move government shareholding to a Bank Investment Company.
Result: Some appointment and board practices changed. The full holding-company plan was not enacted.
Primary records: RBI bank licensing history; RBI on rejected priority target; RBI 1998 policy response; RBI on asset reconstruction; RBI on Khan and mergers; RBI Nayak report.
QUICK CHECK 2 OF 6 · TRUE OR FALSE
Was the Urjit Patel group mainly about housing loans?
No. It reviewed India’s monetary-policy framework.
Show answer
False. No. It reviewed India’s monetary-policy framework.
Good to Know: Why the Regulator-Matching Matters
1. 1993–94 · R. N. Malhotra: open insurance safely
Problem: State insurers dominated a market with limited competition and reach.
Proposed: Admit private insurers. Create an independent regulator. Protect policyholders through licensing and oversight.
Result: The insurance regulator followed in 1999 and gained statutory status in 2000. Private insurers entered under rules.
The committee came before the Insurance Regulatory and Development Authority of India (IRDAI).
2. 1987 · N. Vaghul: develop short-term finance
Problem: Banks and firms needed more ways to borrow or invest for short periods.
Proposed: Broaden money-market participation. Add certificates of deposit and commercial paper.
A certificate of deposit is a tradable bank deposit. Commercial paper is short-term borrowing by an eligible company.
Result: Certificates began in 1989. Commercial paper followed in 1990 under RBI rules.
3. 1998 · L. C. Gupta: start derivatives with safeguards
Problem: A futures market could help hedge price risk. Poor controls could also magnify losses.
Proposed: Start exchange-traded products in stages. Use qualified members, clearing rules, and risk-based margins.
A margin is money held against possible trading losses.
Result: SEBI issued rules. Index futures started in 2000. Later SEBI reviews changed some market details.
4. 1997 and 2006 · S. S. Tarapore: open capital flows carefully
Problem: Freer cross-border investment can bring funds. Sudden outflows can also strain the rupee and banks.
Proposed: Open in stages. Watch fiscal health, bank strength, inflation and foreign-exchange reserves.
Capital-account convertibility means fewer controls on converting money for investment and borrowing abroad.
Result: India eased selected routes. It did not grant unrestricted capital movement on either proposed timetable.
Primary records: IRDAI evolution; RBI money-market chronology; SEBI Gupta review; SEBI derivatives history; RBI Tarapore report.
QUICK CHECK 3 OF 6 · TRUE OR FALSE
Were both the Malegam and Urjit Patel groups appointed by RBI?
Yes. They worked on different RBI concerns.
Show answer
True. Yes. They worked on different RBI concerns.
Great to Know: Why So Many Committees in This Era
1. 1985 · Sukhamoy Chakravarty: give money policy an anchor
Problem: Government borrowing and credit growth made inflation harder to manage.
Proposed: Set flexible targets for broad money growth. Watch reserve money and review targets as conditions changed.
Broad money includes cash and many bank deposits.
Result: RBI used monetary targeting from the mid-1980s. It later changed approach as money demand became less reliable.
2. 2013–14 · Urjit Patel: make the inflation goal clear
Problem: Many indicators gave no single, clear guide for interest-rate decisions.
Proposed: Use consumer-price inflation as the main anchor. Publish a target and establish a decision committee.
Result: A 2016 law created the six-member Monetary Policy Committee (MPC). The RBI Governor chairs it.
The later legal design was not identical to every line of the report.
3. 2008 · Raghuram Rajan: many small financial reforms
Problem: Credit, payment and investment markets did not serve every household or firm well.
Proposed: Expand access, deepen bond markets, strengthen oversight and improve financial literacy.
Result: Later policies took up selected themes. Do not attribute every later financial reform to this report.
4. 2011 · Y. H. Malegam: protect microfinance borrowers
Problem: Fast-growing small-loan firms faced concerns over pricing, repeated borrowing and collection practices.
Proposed: Define a microfinance lender class. Set borrower and loan safeguards. Require clearer pricing.
Result: RBI created the NBFC-MFI category and issued rules. NBFC means non-banking financial company.
Later RBI changes revised some limits. A historic rate cap is not a current universal rule.
5. 2014 · Nachiket Mor: reach excluded households
Problem: Many people lacked nearby accounts, payments and suitable credit.
Proposed: Widen payment access. Support specialised bank types. Improve local access and consumer protection.
Result: RBI later licensed payments banks and small finance banks. Those designs drew on several inputs.
A payments bank cannot lend like a full-service bank.
6. 2015 · Deepak Mohanty: measure meaningful inclusion
Problem: Having an account alone did not ensure useful savings, credit or insurance.
Proposed: Set a medium-term plan. Train banking correspondents and improve credit counselling.
A banking correspondent offers basic banking services away from a branch.
Result: RBI reported work on training, a correspondent registry and counselling. These were partial steps.
Primary records: RBI monetary history; RBI policy history; Rajan original report; RBI Malegam response; RBI on Mor and payments banks; RBI Mohanty follow-up.
Compare the reports by the risk they addressed
These reports did not all seek more competition. Some first asked how to keep new risks in check.
| Theme | Problem | Typical response | Names to remember |
|---|---|---|---|
| Bank safety | Bad loans and weak capital | Show losses, hold capital, improve boards | Narasimham I and II; Nayak |
| Market access | Few safe ways to borrow or hedge | New instruments with clear risk rules | Vaghul; Gupta; Khan |
| Money stability | Unclear price-control anchor | Set and explain a policy target | Chakravarty; Patel |
| Public reach | People lacked useful finance | Wider access plus borrower safeguards | Rajan; Malegam; Mor; Mohanty |
| Opening with care | New firms and global funds bring risk | License and supervise in stages | Malhotra; Tarapore |
Example: The Gupta group supported futures trading. It also called for margins and clearing controls.
A student should remember both parts. The reform opened a market and built safeguards around it.
The same rule helps with Narasimham II. The report did not simply call for bigger banks.
It also sought stronger capital, cleaner loan books and better oversight. Those steps help a bank withstand losses.
For exams, ask three questions. Who chaired it? What risk did it address? Which later rule can you verify?
Think it through. Why does it make sense that a committee recommending a new regulator be formed before that regulator exists, rather than after?
Show the explanation
The committee can propose a regulator before it exists. The government must then create it through law.
Previous Year Questions
The NDA 2017 paper asked Urjit Patel’s role before he became RBI Governor. He was an RBI Deputy Governor.
The Civil Services 2017 paper tested the MPC. It has six members, and the RBI Governor chairs it.
View Civil Services question 11 →
Do not say the Finance Minister chairs the MPC. Also keep a committee’s report separate from the law passed later.
QUICK CHECK 4 OF 6 · TRUE OR FALSE
Does India’s Finance Minister chair the MPC?
No. The RBI Governor chairs the six-member committee.
Show answer
False. No. The RBI Governor chairs the six-member committee.
Current Affairs
1. How to check a committee claim
- Find its year and the body that appointed it.
- Read what the report recommended.
- Find the later law, RBI rule or SEBI rule.
- Label each idea adopted, partly adopted or not adopted.
For example, Malhotra’s report came before IRDAI. Narasimham’s low priority-lending target was not accepted.
Interest rates and insurance laws can change. Use a dated RBI or government source for current figures.
Earlier reporting on an August 2026 MPC meeting and a 2025 insurance law gives dated context.
Those events are later policy steps. Do not claim that one old committee alone caused them.
Further primary records: RBI Nayak release; RBI Tarapore review; RBI microfinance circular; SEBI 1997–98 annual report.
QUICK CHECK 5 OF 6 · TRUE OR FALSE
Did RBI create an NBFC-MFI category after the Malegam report?
Yes. RBI adopted a broad framework and issued rules.
Show answer
True. Yes. RBI adopted a broad framework and issued rules.
QUICK CHECK 6 OF 6 · TRUE OR FALSE
Did RBI accept Narasimham I’s proposed 10 percent priority-lending target?
No. RBI records that this specific target was not accepted.
Show answer
False. No. RBI records that this specific target was not accepted.
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