Banking Committees - Summary

India

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Nayak Committee

Narasimham2 Committee

Verma Committee

Tarapore on Convertibility

Narasimham Committee

Kapoor Committee

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Banking Committees - Summary

VARIOUS COMMITTEES ON BANKING IN INDIA Year Chairman 1929 B N Mitra 1944 1945 1949 1954 1964 1965 1968 1969 1969 1970 1970 1970 1970 1970 1971 1972 1975 1985 1975 1976 1976 1978 1978 1978 1978 1978 1978 DR Gadgil RS Saria Sri Purshottam Dass AD Gorwala RN Mirdha B Venketaiya DR Gadgil FKF Nariman Dehejia Chatalier Khusro Dandekar Hathi BD Thakar RK Talwar GR Saria Varshney Marathe N Narsimhan CE Kamathv Dr RK Hajari NL Dantwala James Raj Baldev Singh K Madhav Das Tambe Issue covered Central Banking Functions and Agr Finance Agricultural finance Agr Finance & Coop Societies Agr Finance & Coop Societies Study of rural finance Coop Societies Review of rural finance system Social approach on banking review of institutional condition Branch expansion programme Financial requirement of trade & industry Finance to small scale industry Small village and cottage industry Regional imbalances Soiled notes Job criteria approach in bank loans Enactments at state level regarding agriculture finance Banking under changed social and political environment Revised method for loans of Rs.2 lac or more Credit Authorisation scheme - fast track Establishment of RRBs Multi-institutional approach in Agr finance Coodn between coop credit institutions Viability of RRBs Systems and procedures of working in PSBs Simplification of loan procedures and documentation relating to agricultural and allied activities Urban Coop Banks Composite term loan to SSIs

G Luxminarayan Consortium Finance - Public/private sector

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Banking Committees - Summary

India

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1979 1980 1981 1982 1982 1982 1982 1983 1983 1986 1986 1986 1987 1988 1989 1991 1991 1991 1992 1992 1992 1992 1992 1993 1993 1993 1993 1993 1995 1995 1995 1997 1997 1998

R K Talwar KS Krishaswami B Shivraman Puri S Chakravarty A Ghosh UK Sharma Tiwari Pandharkar Vaghul G S Patel SM Kelkar Abid Hussain PD Ojha

Customer service Role of banks in priority sector advances and 20 point programmes Establishment of NABARD Uniformity of loan application Review of monetary system in banking industry Priority sector and 20 point programme Review of lead bank scheme Indl sickness and rehabilitation of sick units Periodical inspection by RBI Money market Organisation & management of stock exchange RRB and its relative Acts Development of capital market Service Area Approach

SC Introduction of factoring services Kalyansundaram M N Goiporia M Narasimha SA Dave C Rao AC Shah Nadkarni SS Raja Chelliah Ghosh J V Shetty PR Nayak Goswami Jilani R D R Mehta Sodhani Padmanabhan Shere K S B D Shah Tarapore M Narsimham Customer service improvement Financial sector reforms Functioning of Mutual funds Agriculture policy NBFCs Trading in public sector bonds Tax reforms Frauds & malapractices in banks Consortium lending by banks Institutional credit to SS SSIs Indl sickness and exit policy Credit delivery system Review of progress of IRDP NRI investments in India Banking supervision Electronic funds transfer- legal issues Stock lending scheme Capital account convertibility Financial Sector reforms

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Banking Committees - Summary

India

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1998 1998 1998 1998 1999

S L Kapoor R H Khan Y V Reddy L C Gupta M S Verma

Institutional credit to SSIs Harmonisation of role of FIs & Banks Financial aggregates system Financial derivatives Measures for Weak Banks

Summary of recommendations of some of these committee:

Committee to review the working of Monetary System (Sukmoy Chakervarty 1985)

Need for financing the plans in a non-inflationary manner by tapping the savings of the public in greater measure than in the past, apart from realising higher savings from PSUs and improving efficiency in revenue gathering and expenditure functions. Revision in the yield on dated securities and the discount rate on Treasury bills, controlled competition among banks based on an administered spread of 3% point between the maximum interest rate on deposits and the minimum lending rate of banks, positive real return of 2% p.a. to savers, rationalisation of concessional interest rates. Ceiling on inter-bank call money should be removed and call money market broad based by permitting more players. Need for stricter credit discipline, reduction in importance of cash credit and greater resort to financing of working capital through loans and bills, bills financing should attract inter 2% below the minimum lending rate, large units should be asked to pay interest on delayed payment. RBI should take measures to develop an efficient money market.

Committee on organisation and management of Stock exchanges (G S Patel - 1986):

Rationalisation of rates of under-writing commission brokerage and managing brokers remuneration. Inviting applications for securities from the public for a minimum amount of Rs.1000 with a minimum allotment of 100 shares of Rs.10 each. Reduction in minimum no. of days for keeping open the subscription to public offer of securities from three days to four days. Laying down the code of conduct for the members of Stock Exchanges and their clients. Creation of Customers Protection Fund in stock exchanges. Providing of insurance cover for members of stock exchanges. Adoption of uniform model for organisation of stock exchanges. Broad basing the Governing bodies of Stock exchanges. Establishment of an apex body and increase in the membership of stock exchanges.

Working Group on money market (V N Vaghul - 1987): To provide an equilibrating mechanism for evening out short term surpluses / deficits to provide a focal point for Central Bank intervention to influence liquidity and to provide reasonable access to those in need of short-term funds, the working group suggested following:

Freeing the both inter-bank call rate and rates for term deposits / loans from the ceiling rates. Phased increase in proportion of bill acceptances to total credit purchases to 75%, Govt. to direct departmental undertakings and PSUs to make payment for credit purchases only in the form of bills, with

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Banking Committees - Summary

India

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penal interest for failure to pay on due date. Banks should gradually move away from receivables financing to bill financing, particularly the CAS borrowers, gradual reduction of working capital facilities against book debts to 25% by 1990. Issuance of commercial paper by A rated companies, listed on stock exchanges, having good dividend payment record, setting up or a credit rating agency. Coupon rates should be freely determined by market considerations, frequent auctions of 182 days treasury bills. Re-introduction of inter-bank participation certificates to even out short term liquidity.

Working Group on Development of Capital Market (Abid Hussain 1987):

Some of the major profit making PSUs should offer a portion of their share capital to the public as part of a long term strategy to not only instill a fair degree of stability in the stock exchanges but also to ensure a substantial increase in the number of listed scrips. Joint sector mutual funds that combine the strength offer a portion of their share capital to the public as part of a long term strategy to not only instill a fair degree of stability in the stock exchanges but also to ensure a substantial increase in the number of listed scrips. Joint sector mutual funds that combine the strength and credibility of the public sector financial institutions and professional management and competitive approach of private sector should be allowed. Study group on establishment of new stock exchange and guidelines relating to valuation and new instruments - MJ Pherwani - 1991):

Setting up of a National Stock Exchange. Minimum capital requirement for entering the primary market by means of public issues to be raised from Rs.3 crore to Rs.5 crore, companies with lower capital requirement may be listed on OTC. The minimum offer to the public after reservations for foreign collaborations, employee, mutual funds, market makers and other preferential allottees, should be 26% of the issued capital. Credit should be mandatory for public / right issue debt instruments. Close-ended pure equity schemes of mutual funds should be listed on the stock exchanges. Companies with new issues to appoint a market maker at least in the regional Stock Exchange, evolve a mechanism to consolidate odd lots of its shares and securities. The time limit for allotment of securities to be reduced and minimum application amount to be raised.

Ghosh Committee on Frauds and malpractices in Banks The committee also known as Committee to enquire into various aspects of frauds and malpractices in Banks gave its recommendations in 1993 (accepted by RBI wef 26.6.93), the major among them being: Photographs of depositors / persons authorised to operate the accounts be taken in all deposit accounts - whether resident / including non-resident, fixed deposits, recurring deposits etc. Photograph need not be obtained in borrowal accounts like credit or overdraft etc. Normally bank should not take more than 2 copies of photograph. Only one set of photographs be taken for all category of accounts in respect of depositor. In case of deposits in the name of minor, guardians photograph be taken. Saving account with non-cheque facility and term deposits accounts upto Rs.10000 are exempted from requirement of obtaining photographs. Banks to nominate a senior level officer as Compliance Officer who should ensure and report that various items of work in different departments are carried out strictly in accordance with systems and procedures laid down by the bank. He should also ensure that all RBI/Board instructions are meticulously observed. Banks should provide desk cards for different type of work to help employees understand and observe their duties. Concurrent audit should be introduced in very large and exceptionally large branches. Cash and other valuables must be kept in joint custody. Currency chest transactions should be reported to RBI on the same day.

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No official should exceed his delegated authority except in very emergent circumstances. Cash should not be received other than in the cash department and cashier should not be allowed to make entries in the pass book. Expert Group on foreign exchange markets - Sodhani Committee - June 95

banks may be permitted to decide open position limit subject to their marketing capital to the extent of 5% of the open exposure limit. The current cap of 15 crore on open exchange position may be withdrawn. Banks may be permitted to fix their own gap limits based on capital, risk bearing capacity etc. Banks should have freedom to determine interest rates and maturity period of FCNR-B deposits subject to a cap put in place by RBI. Exporters should be subject to liquidation of outstanding advances, be permitted to retain 100% of export earnings in foreign currency in India. Corporates be permitted to cancel or re-book option contracts and hedge any genuine contingent exposure using options. All market participants should put in place, risk management policies and internal control systems before being allowed to transact in forex and interest rate derivative products. Proper disclosure of interest rate and forex risk should be made in financial statements.

Committee on Technological Issues - WS Saraf - Dec 1994

An electronic funds transfer system be set up - BANKNET communication network may be used for the purpose. Steps be taken by RBI to enact a suitable legislation on the lines of Electronic Funds Transfer Act 1978 in USA and Data Protection Act 1984 in UK. RBI may explore the feasibility of using NICNET for electronic reporting of currency chest transactions. Funds settlement in respect of Govt. transactions may be delinked from submission of scrolls and documents to PAO of Govt. deptt. Funds settlement to take place in a prescribed time frame ensuring at T+1 system. Electronic clearing service be introduced to effect repetitive low value transactions like interest, dividend, refund orders, salary, pension etc. Bills payment system to introduce to enable customers of utility services to pay bills by debt to their accounts in banks. Cheque transaction system should introduced initially for Intra-bank cheques of value upto Rs.5000. In due course, it may be extended to Inter-bank in

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