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the committee is objectively clear by the terms of reference it was given while setting up:
“To review the progress of banking sector reforms to date and chart a programme of financial sector reforms necessary to strengthen India’s financial system and make it internationally competitive”
The Narasimham Committee-II (popularly called by the Government of India) handed over its reports in April 1998, which included the following major suggestions:28
(i) Need for a stronger banking system for which mergers of the PSBs and the financial institutions (AIFIs) were suggested—stronger banks and the DFIs (development financial institutions, i.e., AIFIs) to be merged while weaker and unviable ones to be closed.
(ii) A 3-tier banking structure was suggested after mergers:
(a) Tier-1 to have 2 to 3 banks of international orientation;
(b) Tier-2 to have 8 to 10 banks of national orientation; and
(c) Tier-3 to have large number of local banks.
The first and second tiers were to take care of the banking needs of the corporate sector in the economy.
(iii) Higher norms of Capital-to-Risk—Weighted Adequacy Ratio (CRAR) suggested—increased to 10 per cent.
(iv) Budgetary recapitalisation of the PSBs is not viable and should be abandoned.
(v) Legal framework of loan recovery should be strengthened (the government passed the SARFAESI (Act, 2002).
(vi) Net NPAs for all banks suggested to be cut down to below 5 per cent by 2000 and 3 per cent by 2002.
(vii) Rationalisation of branches and staffs of the PSBs suggested.
(viii) Licencing to new private banks (domestic as well as foreign) was suggested to continue with.
(ix) Banks’ boards should be depoliticised under RBI supervision.
(x) Board for financial Regulation and Supervisions (BFRS) should be set
up for the whole banking, financial and the NBFCs in India.29