1. Banking Sector Reforms

2. Pre-Reform Era Prior to reforms, the Indian banking Sector was
characterised by:
Administered interest rate structure
Quantitative restrictions on credit flows
High Reserve Requirements
Imposition of stringent regulations by RBI
Low productivity / efficiency in PSU banks
Deteriorating portfolio quality/ increasing NPAs

3. Pre-Reform Era Inferior work technology
Poor quality of customer service
Inability to face competition
It was in the above circumstances that
the first Narasimham Committee was
set up.

4. Narasimham Committee The first Narasimham Committee was set up
in 1991 to suggest remedial measures for
strengthening the banking system
encompassing:
Banking Policy
Institutional Structure
Supervisory System
Legislative and technological changes

5. Thrust of reforms The main thrust of economic reforms was on:
Removal of structural bottlenecks
Introduction of new players and instruments
Introduction of free pricing of financial assets
Relaxation of quantitative restrictions
Improvement in trading, clearing and settlement practices
Promotion of institutional infrastructure
Ensuring of technological upgradation.

6. First Phase of Banking Sector Reforms
included the following:
Reduction in SLR and CRR to 25% and 10% respectively
De-regulation of interest rates on deposits and advances
Transparent guidelines for private sector reforms
Modification of bank balance sheet and P&L a/c to disclose more information

7. First Phase of Banking Sector Reforms
included the following:
Direct access to capital markets for PSU banks
Liberalised branch licensing policy and more licenses for private sector banks
Setting up of Debt Recovery Tribunals to ensure quick recovery of debts
Prudential norms for income recognition, asset classification and provisioning of bad debts
Capital adequacy norms –BIS norms on capital adequacy to be followed.

8. Non Performing Assets (NPA)
The Narasimham Committee (1991) identified NPAs
as one of the possible causes / effects of the
malfunctioning of PSU banks.
NPAs are those categories of assets (advances ,
bills disc, cash credit, etc) which cease to generate
income for the bank.

9. Basis of treating an asset (credit facility) as NPA
Where the interest and installments remain overdue for a period exceeding 90 days
Any bill which remain overdue for a period of 90 days
Any amount due on any other loan which remain overdue for a period exceeding 90 days
4. Any Cash Credit / overdraft facility which remains out of order for a period exceeding 90 days

10. Asset Classification Standard asset Sub Standard Asset Doubtful asset
Loss asset

11. Standard Asset
is one which does not carry more than normal risk attached to the business and which does not disclose any problems.

12. Sub Standard Asset
is one which has been classified as NPA for a period not exceeding 12 months.

13. Doubtful Asset
is one which has been classified as NPA for a period exceeding 12 months.

14. Loss Asset
Loss Asset is one where loss has been identified by the bank or internal or external auditors or RBI Inspectors , but the amount has not been written off.