Banking Sector Reforms – Basel Norms, Risk Management, Non-Performing Assets Commerce YouTube Lecture Handouts Part 1

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Title: Banking Sector Reforms – Basel Norms, Risk Management, Non-Performing Assets

Banking Sector Reforms – Basel Norms, Risk Management, Non-Performing Assets

Growth Phase in Indian Banking Sector

In over five decades since independence, banking system in India has passed through distinct phases –

  • Evolutionary phase (prior to 1950)
  • Foundation phase (1950 - 1968)
  • Expansion phase (1968 - 1984)
  • Consolidation phase (1984 - 1990)

Reformatory Phase (Since 1990)

The First Phase of Reforms

The banking sector reforms are directed toward improving the policy framework, financial health and the institutional framework:

The First Phase of Reforms

Second Phase Reforms

The second-generation reforms focus on strengthening the foundation of the banking system in three ways:

  • by reforming the structure of the bank industry,
  • technological upgradation, and
  • human resource development.
Prudential Regulation

The major objective of setting such norms was to ensure financial safety, soundness and solvency of banks.

These norms are directed toward ensuring that banks carry on their operations as prudent entities, are free from undue risk-taking, and do not violate banking regulations in pursuit of profit.

Committee Formation

  • In view of economic liberalization and growing trend towards globalization, various banking sector reforms have been introduced in India to improve the operation efficiency and upgrade the health and financial soundness of banks so that Indian banks can meet internationally accepted standards of performance.
  • Reforms in the banking sector were introduced on the basis of the recommendations of different committees:
    • The First Narasimhan Committee (1991) ,
    • The Verma Committee (1996) ,
    • The Khan Committee (1997) , and
    • The Second Narasimhan Committee (1998) .

The Narasimham Committee 1991 – First Phase

  • The first committee of India to suggest acts and reforms for an improved banking system.
  • The committee was formed right after the economic crisis.

It suggested –

  • Autonomy in Banking,
  • Reforms in the role of RBI,
  • Change in CRR and SLR,
  • Recovery of Deb
  • Freedom Operation,
  • Area Banks, Prudential
  • Norms, and Entry of Foreign Banks.

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