How was banking System reform in India

 

How was banking System reform in India ??

The banking system is the heart of all economic activity of the country and small change in its regulation affect the entire economy

History of the banking sector reform

The banking System in India can be categorised in two phases

1. Pre Independence phase (1786-1947)

2. post independence phase (1947 – till date)

Pre independence phase

👉Modern banking in India started back to 1786 with the establishment of general Bank of India

👉Three Presidency bank bank of Bengal, bank of Bombay and Bank of Madras establishment under character of British East India company

👉In 1935 the presidency Bank merge together and form a new bank name Imperial Bank of India

👉In 1955 the Imperial Bank of India was nationalized and name the State Bank of India

👉 first Indian owner Allahabad Bank was set up in 1865 in Allahabad

👉 Many more commercial banks such as Punjab National Bank Canara Bank Indian Bank Central Bank of India Bank of Baroda was established between 1894 and 1913 under Indian ownership

👉 central bank of the India RBI established in 1935 on the Recommendation of Hilton young commission

👉At the time the banking system was only cover the Urban population rural and Agriculture sector was totally neglected

Post independence 1947 to till

👉 the time of the Independence the entire banking sector was under the private ownership.the rural population of the country had to dependent on small money lenders for their requirement. to solve this issue and better development of the economy the Government of the India nationalized the RBI in 1949

👉In 1969 the Government of India nationalized 14 major banks whose National deposit were more than 50 crores

Nationalised banks

Allahabad Bank

Punjab National Bank

Bank of Baroda

 Indian Bank

Canara Bank etc.

Reasons behind the banking sector reform in India

The Indian economy witnessed a series difficulties like a uncertain Political situation ,fiscal imbalance, double-digit influence and the balance of payment crisis

First phase banking sector reform

 M Narsimham committe 1

To rebuild the financial health of the commercial bank and to make their function efficient and profitable the Government of the India appoint high level committee the name of the committee .committee of financial system (CFs) under the chairmanship of m.Narsimham .it was 9 member team along with the Narsimham .

Recommendation

1. the interest rate should be a determined by the bank and on the basis of market power. Not by the government intervention (हस्तक्षेप)

2. reserve ratio CRR should be reduced so that Bank can have more capital available for business

3. A tribunal(a body established to settle certain types of dispute) should be set up for timely recovery loan given by the bank.debt recovery Tribunal was established in 1993

4. the loan given under the priority sector (like medium, small, micro enterprises or business and agriculture sector)or priority sector lending(PSL) should be also given at normal rate of market

5. the government should be sell some stakes of the public Bank to private sector or private bank so that some private professionals can enter in public banks and this is encourage professionalism

6. make recommendation  for great competition into a system so as the bank and Finance Institute to response more effectively to the emerging(उभरते) credit need of economy

7. banking ombudsman(an official team appointed to investigate individuals' complaints against the banks) should be set up so that grievance (problems) of the customer and Bank employee can be redressal(solve)

Second phase reform Narsimham committee  2

Autonomy of bank

Public sector bank should be given adequate (पर्याप्त) freedom and autonomy (स्वत्व अधिकार) so that it can better complete with the international and private banks

The recruitment procedure training and remuneration policies of the employee in public bank should be as per the most best methodology of professional banking system

2. Strong Bank- strong Bank merger

Large bank with the strong economy base should be Merged with each other so that it can become strong enough to establish its presence on the global level and in international trade

3. Non performing assets (NPA)

Access reconstruction company (ARC) should be set up so that BANK will sell the NPA to ARC.ARC will try to recover the money by auctioning  the assets of borrower or  company

4. Review and updating banking laws

The Narsimham committee has suggested the urgent need to review and amended the provision of RBI act and banking laws. One of that SARFAESI ACT it was enacted in 2002 this act  Empower to auction resident and commercial property of non- repaying person or company for recovery

Video for understanding 👇