Banking Sector Reforms – Basel Norms, Risk Management, Non-Performing Assets Commerce YouTube Lecture Handouts Part 3

Get unlimited access to the best preparation resource for competitive exams : get questions, notes, tests, video lectures and more- for all subjects of your exam.

Other Important Reforms Included

  • Institutional and Legal Measures
  • Supervisory Measures
  • Technology Related Measures
  • Competition Enhancing Measures
  • Measures Enhancing Role of Market Forces

Institutional and Legal Measures

  • Settling up of Lok Adalat՚s (people՚s courts) , debt recovery tribunals, asset reconstruction companies, settlement advisory committees, corporate debt restructuring mechanism, etc. for quicker recovery/restructuring.
  • Promulgation of Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) , Act and its subsequent amendment to ensure creditor rights.
  • Setting up of Credit Information Bureau for information sharing on defaulters as also other borrowers.
  • Setting up of Clearing Corporation of India Limited (CCIL) to act as central counter party for facilitating payments and settlement system relating to fixed income securities and money market instruments.

Supervisory Measures

  • Establishment of the Board for Financial Supervision as the apex supervisory authority for commercial banks, financial institutions and non-banking financial companies.
  • Introduction of CAMELS supervisory rating system, move towards risk-based supervision, consolidated supervision of financial conglomerates, strengthening of off-site surveillance through control returns.
  • Recasting of the role of statutory auditors, increased internal control through strengthening of internal audit.
  • Strengthening corporate governance, enhanced due diligence on important shareholders, fit and proper tests for directors

Measures Enhancing Role of Market Forces

  • Sharp reduction in pre-emption through reserve requirement, market determined pricing for government securities, disbanding of administered interest rates with a few exceptions, enhanced transparency and disclosure norms to facilitate market discipline.
  • Introduction of pure inter-bank call money market, auction-based repos-reverse repos for short-term liquidity management, facilitation of improved payments and settlement mechanism.

Competition Enhancing Measures

  • Granting of operational autonomy to public sector banks, reduction of public ownership in public sector banks by allowing them to raise capital from equity market up to 49 per cent of paid-up capital.
  • Transparent norms for entry of Indian private sector, foreign and joint-venture banks and insurance companies, permission for foreign investment in the financial sector in the form of Foreign Direct Investment (FDI) as well as portfolio investment, permission to banks to diversify product portfolio and business activities.

Technology Related Measures

  • Setting up of INFINET as the communication backbone for the financial sector,
  • introduction of Negotiated Dealing System (NDS) for screen-based trading in government securities and
  • Real Time Gross Settlement (RTGS) System.

Risk Management

  • RBI in 1999 recognized the need for an appropriate risk management and issued guidelines to banks regarding assets liability management, management of credit, market and operational risks.
  • The most common objectives are:
    • prudential — to reduce the level of risk to which bank creditors are exposed (i.e.. . , to protect depositors) .
    • systemic risk reduction — to reduce the risk of disruption resulting from adverse trading conditions for banks causing multiple or major bank failures.
    • to avoid misuse of banks — to reduce the risk of banks being used for criminal purposes,
    • to protect banking confidentiality
    • credit allocation — to direct credit to favored sectors.

Major Banking Sector Reforms and Acts of India

Major Banking Sector Reforms and Acts of India


Q. ________Committee was formed in the year 1991.

Answer: Narasimham Committee

Q. The Basel Committee on Banking Supervision maintains its secretariat at the Bank for International Settlements in ________, Switzerland.

Answer: Basel

Developed by: