2 Pre-Reform Era Prior to reforms, the Indian banking Sector was characterised by:Administered interest rate structureQuantitative restrictions on credit flowsHigh Reserve RequirementsImposition of stringent regulations by RBILow productivity / efficiency in PSU banksDeteriorating portfolio quality/ increasing NPAs
3 Pre-Reform Era Inferior work technology Poor quality of customer serviceInability to face competitionIt was in the above circumstances thatthe first Narasimham Committee wasset up.
4 Narasimham Committee The first Narasimham Committee was set up in 1991 to suggest remedial measures forstrengthening the banking systemencompassing:Banking PolicyInstitutional StructureSupervisory SystemLegislative and technological changes
5 Thrust of reforms The main thrust of economic reforms was on: Removal of structural bottlenecksIntroduction of new players and instrumentsIntroduction of free pricing of financial assetsRelaxation of quantitative restrictionsImprovement in trading, clearing and settlement practicesPromotion of institutional infrastructureEnsuring of technological upgradation.
6 First Phase of Banking Sector Reforms included the following:Reduction in SLR and CRR to 25% and 10% respectivelyDe-regulation of interest rates on deposits and advancesTransparent guidelines for private sector reformsModification 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 banksLiberalised branch licensing policy and more licenses for private sector banksSetting up of Debt Recovery Tribunals to ensure quick recovery of debtsPrudential norms for income recognition, asset classification and provisioning of bad debtsCapital adequacy norms –BIS norms on capital adequacy to be followed.
8 Non Performing Assets (NPA) The Narasimham Committee (1991) identified NPAsas one of the possible causes / effects of themalfunctioning of PSU banks.NPAs are those categories of assets (advances ,bills disc, cash credit, etc) which cease to generateincome 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 daysAny bill which remain overdue for a period of 90 daysAny amount due on any other loan which remain overdue for a period exceeding 90 days4. 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 Assetis one which does not carry more than normal risk attached to the business and which does not disclose any problems.
12 Sub Standard Assetis one which has been classified as NPA for a period not exceeding 12 months.
13 Doubtful Assetis one which has been classified as NPA for a period exceeding 12 months.
14 Loss AssetLoss 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.