Structure-

-Explain problems related to the banking sector in India

-Explain the role of nationalization and stringent rules on banks

-Explain various committees related to banking reforms- Narsimhan 1, Narsimahn, Nachiket Mor, Kelkar, Raghuram Rajan, Rattan P Wattal, Urjit Patel, Vipin Malik, etc.

-Explain other steps like Bank Board Bureau (BBB), Monetary Policy Committee (MPC), Insolvency and Bankruptcy Code (IBC), Indradhanush Mission, 5-Pronged Strategy, etc.

Model Answer

Since its inception, the modern banking system in India has had an inherent weakness, corruption, and malpractices involved in its operations. Even the British government had to establish the Reserve Bank of India in 1935 to issue currency and to control and co-ordinate the banks.

          Soon after Independence the Government of India enacted Banking Regulation Act, 1949, and in 1965 nationalized the biggest 14 banks containing 85% deposits in the country. Again in 1980, 6 more banks were nationalized. These steps proved pivotal in the future course of banking in India.

Regulation of foreign exchange (1973), Priority Sector Advances (1974), Regional Rural Banks (1975), Strengthening of NBFC regulation (1997), Market Stabilization Scheme (2004) are some of the major steps taken to revamp the Banking Sector.

          After the Balance of Payments crisis in 1991, liberal measures were adopted by the government, and privatization was promoted. To adopt the changed economic scenario, Narsimhan Committee was formed in 1991 and again in 1998. The implementation of recommendations of the Narasimhan committee not only helped India unleash the potential of the banking system but also minimalize the impact of the Global Financial Crisis of 2007.

Some of the other important committees formed under the chairmanship of- Rajmannar (Change in Banking laws), Rangarajan (Computerization of Banking System), SS Tarapore (Fuller Capital Account Convertibility), Usha Thorat (Financial Inclusion), Rattan P Wattal (Digital Payments), Raghurajan (Financial Sector Reforms), and Urjit Patel (Monetary Policy Framework).

To tackle the problems of NPA, Twin Balance Sheet, Wilful defaulters, etc. various measures like Bank Board Bureau (BBB), Monetary Policy Committee (MPC), Insolvency and Bankruptcy Code (IBC), Indradhanush Mission, 5-Pronged Strategy, etc. are taken. MPC ensured the accountability of RBI in checking inflation. Other steps like S4A, Asset Reconstruction Companies, etc. helped sinking businesses to consolidate or liquidate their assets.

Thus, we can say that the Banking Sector has gone through an immense reform process and continues to do so. Present steps by the government like the merger of various public sector banks to form banking giants is also a step forward in this direction