How Does Customer Relationship Management Help

This directed credit programme was successful from the government’s point of view but it affected commercial banks in a bad manner. Basically it deteriorated the quality of loan, resulted in a shift from the security oriented loan to purpose oriented. Banks were given a huge target of priority sector lending, etc. ultimately leading to profit erosion of banks. 3. Interest Rate Structure : The committee found that the interest rate structure and rate of interest in India are highly regulated and controlled by the government. They also found that government used bank funds at a cheap rate under the SLR.

At the same time the government advocated the philosophy of subsidized lending to certain sectors. The committee felt that there was no need for interest subsidy. It made banks handicapped in terms of building main strength and expanding credit supply. 4. Additional Suggestions : Committee also suggested that the determination of interest rate should be on grounds of market forces. It further suggested minimizing the slabs of interest. Along with these major problem areas M. Narasimham’s Committee also found various inconsistencies regarding the banking system in India.

This programme compelled banks to earmark then financial resources for the needy and poor sectors at confessional rates of interest. It was reducing the profitability of banks and thus the committee recommended the stopping of this programme. 3. Interest Rate Determination : The committee felt that the interest rates in India are regulated and controlled by the authorities. The determination of the interest rate should be on the grounds of market forces such as the demand for and the supply of fund.

Hence the committee recommended eliminating government controls on interest rate and phasing out the concessional interest rates for the priority sector. 4. Structural Reorganizations of the Banking sector : The committee recommended that the actual numbers of public sector banks need to be reduced. Three to four big banks including SBI should be developed as international banks. Eight to Ten Banks having nationwide presence should concentrate on the national and universal banking services. Local banks should concentrate on region specific banking.

Regarding the RRBs (Regional Rural Banks), it recommended that they should focus on agriculture and rural financing. They recommended that the government should assure that henceforth there won’t be any nationalization and private and foreign banks should be allowed liberal entry in India. 5. Establishment of the ARF Tribunal : The proportion of bad debts and Non-performing asset (NPA) of the public sector Banks and Development Financial Institute was very alarming in those days. The committee recommended the establishment of an Asset Reconstruction Fund (ARF).

This fund will take over the proportion of the bad and doubtful debts from the banks and financial institutes. It would help banks to get rid of bad debts. 6. Removal of Dual control : Those days banks were under the dual control of the Reserve Bank of India (RBI) and the Banking Division of the Ministry of Finance (Government of India). The committee recommended the stepping of this system. It considered and recommended that the RBI should be the only main agency to regulate banking in India. 7. Banking Autonomy : The committee recommended that the public sector banks should be free and autonomous.

In order to pursue competitiveness and efficiency, banks must enjoy autonomy so that they can reform the work culture and banking technology upgradation will thus be easy. Some of these recommendations were later accepted by the Government of India and became banking reforms. [pic]Narasimham Committee Report II – 1998 In 1998 the government appointed yet another committee under the chairmanship of Mr. Narsimham. It is better known as the Banking Sector Committee. It was told to review the banking reform progress and design a programme for further strengthening the financial system of India.

The committee focused on various areas such as capital adequacy, bank mergers, bank legislation, etc. It submitted its report to the Government in April 1998 with the following recommendations. 1. Strengthening Banks in India : The committee considered the stronger banking system in the context of the Current Account Convertibility ‘CAC’. It thought that Indian banks must be capable of handling problems regarding domestic liquidity and exchange rate management in the light of CAC. Thus, it recommended the merger of strong banks which will have ‘multiplier effect’ on the industry. . Narrow Banking : Those days many public sector banks were facing a problem of the Non-performing assets (NPAs). Some of them had NPAs were as high as 20 percent of their assets. Thus for successful rehabilitation of these banks it recommended ‘Narrow Banking Concept’ where weak banks will be allowed to place their funds only in short term and risk free assets. 3. Capital Adequacy Ratio : In order to improve the inherent strength of the Indian banking system the committee recommended that the Government should raise the prescribed capital adequacy norms.

This will further improve their absorption capacity also. Currently the capital adequacy ration for Indian banks is at 9 percent. 4. Bank ownership : As it had earlier mentioned the freedom for banks in its working and bank autonomy, it felt that the government control over the banks in the form of management and ownership and bank autonomy does not go hand in hand and thus it recommended a review of functions of boards and enabled them to adopt professional corporate strategy. 5.

Review of banking laws : The committee considered that there was an urgent need for reviewing and amending main laws governing Indian Banking Industry like RBI Act, Banking Regulation Act, State Bank of India Act, Bank Nationalisation Act, etc. This upgradation will bring them in line with the present needs of the banking sector in India. Apart from these major recommendations, the committee has also recommended faster computerization, technology upgradation, training of staff, depoliticizing of banks, professionalism in banking, reviewing bank recruitment, etc. [pic]Evaluation of Narsimham Committee Reports

The Committee was first set up in 1991 under the chairmanship of Mr. M. Narasimham who was 13th governor of RBI. Only a few of its recommendations became banking reforms of India and others were not at all considered. Because of this a second committee was again set up in 1998. As far as recommendations regarding bank restructuring, management freedom, strengthening the regulation are concerned, the RBI has to play a major role. If the major recommendations of this committee are accepted, it will prove to be fruitful in making Indian banks more profitable and efficient.

Narasimham Committee on Banking Sector Reforms (1998) [pic][pic][pic][pic][pic] The finance ministry of government of India appointed Mr. M. Narasimham as chairman of one more committee, this time it was called as the committee on banking sector reforms. The committee was asked to “review the progress of banking sector reforms to the date and chart a programme on financial sector reforms necessary to strengthen India’s financial system and make it internationally competitive”. The narasimham committee on banking sector reforms submitted this report to the government in April 1998.

This report covers the entire issues relating to capital adequacy, bank mergers, the condition of global sized banks, recasting of banks boards etc. some important findings are as follows; • Need For Stronger Banking System: The narasimham committee has made out a stronger banking system in country, especially in the context of capital account convertibility (CAC) which would involve large amount of inflow and outflow of capital and consequent complications for exchange rate management and domestic liquidity.

To handle this India would need a strong resilient banking and financial system. • Experiment With The Concept of Narrow Banking: The narasimham committee is seriously concerned with the rehabilitation of weak public sector banks which have accumulated a high percentage of non-paying assets (NPA), and in some cases, as high as 20% of their total assets. They suggested the concept of narrow banking to rehabilitate such weak banks. Small Local Banks: The narasimham committee has argued that “While two or three banks with an international orientation and 8 to 10 of larger banks should take care of their needs of the large and medium corporate sector ad larger of the small enterprises, there will still be a need for a large number of local banks. ” The committee has suggested the setting up of small local banks which should be confined to states or clusters of districts in order to serve local trade, small industry etc. Capital Adequacy Ratio: The narasimham committee has also suggested that the government should consider raising the prescribed capital adequacy ratio to improve the inherent strength of banks and to improve their risk taking ability. • Public Ownership And Real Autonomy: The narasimham committee has argued that government ownership and management of banks does not enhance autonomy and flexibility in working of public sector banks.

Accordingly, the committee has recommended a review of functions of banks boards with a view to make them responsible for enhancing shareholder value through formulation of corporate strategy. • Review And Updating Banking Laws: The narasimham committee has suggested the urgent need to review and amended the provisions of RBI Act, Banking Regulation Act, State Bank of act etc so as to bring them on same line of current banking needs.

Really speaking there was no purpose of setting up the second narasimham committee on banking sector reforms even before a decade has elapsed for the full implementation of the recommendations of First committee. As one critics has commented: “ barring this is, a stray recommendation here or there like the categorical rejection of the merger of weak with strong banks and the suggestion to try out narrow banking, as far as all other issues are concerned”