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CMA Foundation · Fundamentals of Business Economics and Management · Money and Banking

The Narasimham Committee reports on banking sector reforms in India are best known for recommending which of the following?

The Narasimham Committee recommended liberalising and strengthening banks by reducing SLR and CRR, introducing prudential norms such as capital adequacy and income recognition and asset classification, and giving banks more operational freedom and deregulated interest rates. It did not recommend more nationalisation or fixed interest rates.

  1. ANationalisation of all private sector banks to increase government control
  2. BReduction of the statutory liquidity ratio and cash reserve ratio, introduction of prudential norms such as capital adequacy and income recognition, and greater operational freedom for banksCorrect
  3. CAbolition of the Reserve Bank of India as the banking regulator
  4. DComplete fixing of interest rates on deposits and loans by the government

Explanation

The Narasimham Committee (1991 and 1998) pushed for liberalising banking: lowering SLR and CRR, adopting prudential norms like capital adequacy and NPA recognition, and deregulating interest rates. Option one and four move toward more control, which is opposite to the reforms recommended.

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