56542778 banking sector reforms

8/3/2019 56542778 Banking Sector Reforms

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Banking

Sector Reforms

By

Nishkarsha Bdr Ghale


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The government of India accepted all the majorrecommendations of Narasimham Committee

and started implementing it.

1. Statutory Liquidity Ratio (SLR)

SLR is the amount of liquid assets such ascash, gold or other approved securities that a

financial institution must maintain as reservesother than cash with the Central Bank.


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For Long time government intervention in IndiasBanking Sector was in form of high SLR andCRR.

After committees recommendations governmentreduced SLR from 38.5% to 25%.

2. Cash Reserve Ratio (CRR)

Similarly, CRR was reduced from 13% to 7.5%.

Cash Reserve Ratio is a bank regulation that setsthe minimum reserves each bank must hold tocustomer deposits and notes .


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3. Prudential Norms

These are the norms and practices that the

regulating bank expects all the banks to follow.

RBI issued guidelines for income recognition,

asset classification and provisioning for banks.

Its purpose was to ensure that the books of

commercial banks reflect their financial

position more accurately.


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4. Capital Adequacy Ratio (CAR)

Also called as Capital to Risk Assets Ratio

(CRAR) is the ratio of banks capital to risk.

It determines the capacity of bank in termsof meeting the time liabilities and other

risks such as credit risk, operational risketc.

All banks should have minimum 8% of

CRAR as stipulated by RBI.


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5. Access to Capital Market

The Government of India has amended

the Banking Companies Act to enable thenationalized banks to access the market forcapital funds through public issues like

equity, bonds etc.


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6. Freedom of Operation

Commercial banks are now given

freedom to open new branches and

upgrade extension counters afterobtaining prudential norms and capital

adequacy norms.


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7. Recovery of Debts

The Government of India passedRecovery of Debts due to Banks and

Financial Institutions Act,1993 in order tofacilitate and speed up recovery of debtsdue to banks and financial institutions.

6 Special Recovery Tribunals have been

set up at Calcutta, New Delhi, Jaipur,Ahmedabad, Bangalore and Chennai tofacilitate quicker recovery of loans.


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8. Modern Technology in Banking

i) Computerization

In October 1993, an agreement was signedbetween Indian Banks Association (IBA)

and employees unions regarding

computerization in banks.

Accordingly, banks are switching to PCsand LAN/WAN systems.


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ii) Core Banking

(Centralized Online Real-time Exchange )

It means that all the banks branches access

applications from centralized datacenters.

There is a central database for the bank and

transactions are done centrally online.

Normal core banking functions will include

deposit accounts, loans and paymentsthrough ATMs, internet banking etc


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iii) Investment Banking

An investment bank is an institution which

acts as an agent for corporations issuingsecurities.

In other words, it acts as an intermediary

between an issuer of securities and the

investing public.


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iv) Technological Developments

Most of the initiatives regarding technology

were aimed at providing better and efficient

customer service in less time.

Example: Almost all of the banks these

days uses internet banking, mobile

banking, SMS banking systems.

56542778 banking sector reforms

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