5. Asset Reconstruction Companies/Fund

To tackle the menace of the higher non-performing assets (NPAs) of banks and financial institutions, the committee suggested setting up of asset reconstruction companies/funds (taking clue from the US experience).

The committee directly blamed the Government of India and the Ministry of Finance for the sad state of affairs of the PSBs. These banks were used and abused by the GoI, the officials, the bank employees and the trade unions, the report adds. The recommendations were revolutionary in many respects and were opposed by the bank unions and the leftist political

parties.

There were some other major suggestions of the committee which made it possible to get the following26 things done by the government:

(i) opening of new private sector banks permitted in 1993;

(ii) prudential norms relating to income recognition, asset classification and provisioning by banks on the basis of objective criteria laid down by the RBI;

(iii) introduction of capital adequacy norms (i.e., CAR provisions) with international standard started;

(iv) simplification in the banking regulation (i.e., via board for financial supervision in 1994); etc.