Bank of baroda

Banking Sector Reforms
In the wake of the last decade of financial reforms, the banking industry in India has undergone a significant transformation,
which has covered almost all important facets of the industry.
Most large banks in India were nationalised by 1980 and thereafter were subject to a high degree of control until reform
began in 1991. In addition to controlling interest rates and entry into the banking sector, the regulations also channelled
lending into priority sectors. Banks were required to fund the public sector through the mandatory acquisition of low-
interest-bearing government securities or statutory liquidity ratio bonds to fulfil statutory liquidity requirements. As a result,
bank profitability was low, non-performing assets were comparatively high, capital adequacy was diminished, and
operational flexibility was hindered.
Committee on the Financial System (Narasimham Committee I)
The Committee on the Financial System (Narasimham Committee I) was set up in August 1991 to recommend measures
for reforming the financial sector. Many of the recommendations made by the committee, which addressed organisational
issues, accounting practices and operating procedures, were implemented by the Government of India. The major
recommendations that were implemented included the following:
With fiscal stabilisation and the Government increasingly resorting to market borrowing to raise resources, the
statutory liquidity ratio, or the proportion of a bank’s net demand and time liabilities that were required to be
invested in government securities, was reduced from 38.5%, in the pre-reform period, to 25.0% in October 1997.
This meant that the significance of the statutory liquidity ratio shifted from being a major instrument for financing the
public sector in the pre-reform era to becoming a prudential requirement;
Similarly, the cash reserve ratio or the proportion of the bank’s net demand and time liabilities that were required to
be deposited with RBI, was reduced from 15.0%, in the pre-reform period, to 5.0% currently;

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BANK OF BARODA
Special tribunals were created to resolve bad debt problems;
Most of the restrictions on interest rates for deposits were removed and commercial banks were allowed to set their
own level of interest rates for all deposits except savings bank deposits; and
Substantial capital infusion to several state-owned banks was approved in order to bring their capital adequacy
closer to internationally accepted standards. The stronger public sector banks were given permission to issue equity
to increase capital.