Narasimham Committee

One man chaired both of India’s landmark banking-reform committees, seven years apart. M. Narasimham’s 1991 and 1998 reports still shape how Indian banks operate today.

Two Reports, One Reformer

IndEco0173

1977

Narasimham’s RBI Term

Brief, but rose through its own ranks

Aug–Dec 1991

Committee I (CFS)

Cuts SLR/CRR, opens the sector

23 Apr 1998

Committee II Report

CRAR raised 8% → 10%

Legacy

“Narrow Banking”

A concept still cited in bank reform

Same chairman, two eras: the 1991 report opened up Indian banking; the 1998 report focused on strengthening it against risk.

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Timeline

• 2 May – 30 November 1977: M. Narasimham serves as the 13th Governor of the Reserve Bank of India.
• August 1991: The government sets up the Committee on the Financial System, chaired by Narasimham, in the aftermath of India’s balance-of-payments crisis.
• 17 December 1991: The committee’s report is tabled in Parliament.
• 1998: The government sets up a second committee, the Committee on Banking Sector Reforms, again chaired by Narasimham.
• 23 April 1998: The second committee submits its report to Finance Minister Yashwant Sinha.

Must Know

• Both landmark banking-reform committees were chaired by M. Narasimham, a former RBI Governor often called the father of India’s banking reforms.
• The 1991 committee was formally called the Committee on the Financial System (CFS). It recommended cutting the SLR and CRR, market-based interest rates, and greater bank autonomy.
• The 1998 committee was formally called the Committee on Banking Sector Reforms. It recommended raising the Capital to Risk-weighted Assets Ratio (CRAR) from 8% to 10%.
• Narasimham Committee II also introduced “narrow banking,” letting weak banks park funds only in safe assets, to stabilise their finances.
• Both committees recommended reducing the number of public sector banks through mergers and consolidation, while explicitly warning against merging strong banks with weak ones.

Good to Know

• M. Narasimham served as RBI Governor for less than seven months, from May to November 1977. He remains the only RBI Governor to have risen through the central bank’s own internal ranks.
• The 1991 committee’s nine members submitted their report to the Finance Minister in November 1991, just months after being constituted.
• The 1991 committee proposed a tiered banking structure: a few large international banks, several national banks, and many local or regional ones. It also recommended phasing out directed credit programmes.
• The 1998 committee wanted an Asset Reconstruction Fund to tackle rising non-performing assets (NPAs). It targeted bringing gross NPAs down to 3% by 2002.
• Under the 1998 committee’s proposed bank consolidation, strong banks would merge to form 2 to 3 international-scale banks and 8 to 10 national banks.

Test Yourself

Please wait…

1. Who chaired both the 1991 and 1998 committees on Indian banking sector reforms?

I.G. Patel

C. Rangarajan

M. Narasimham

Y.V. Reddy

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Great to Know

• These committees’ recommendations fed directly into how the RBI itself evolved after 1991. See IndEco0172 — Reserve Bank of India (RBI) for the institution that implemented much of this reform.
• Narasimham’s own brief RBI governorship, and his later chairmanship of two separate reform committees, place him alongside other RBI-linked figures worth comparing. See IndEco0169 — I.G. Patel for another former Governor whose influence extended well beyond his own tenure.
• The gap between the two committees, 1991 to 1998, shows reform as an ongoing process rather than a single fix. India’s first-generation reforms opened up the sector; the second generation focused on strengthening it against risk.