Bank of baroda

Committee on Banking Sector Reform (Narasimham Committee II)
The second Committee on Banking Sector Reform (Narasimham Committee II) submitted its report in April 1998. The
major recommendations of the committee were in respect of capital adequacy requirements, asset classification and
provisioning, risk management and merger policies. RBI accepted and began implementing many of these
recommendations in October 1998.
The successes of the reforms were aided to a large extent by the relative macroeconomic stability during the period.
Another distinguishing feature of the reforms was the successful sequencing and gradual introduction of the reforms.
Banks have implemented new prudential accounting norms for the classification of assets, income recognition and loan
loss provisioning. Following the Bank for International Settlements (BIS) guidelines, capital adequacy norms have also
been prescribed. To meet additional capital requirements, public sector banks have been allowed to access the market
for funds. Interest rates have been deregulated, while the rigour of directed lending has been progressively reduced.
Committee on Capital Account Convertibility (Tarapore Committee)
In 1997, the Tarapore Committee on Capital Account Convertibility, constituted by the Reserve Bank, set out the
preconditions for capital account convertibility. The three crucial preconditions were fiscal consolidation, a mandated
inflation target and a strengthening of the financial system. RBI set itself the objective of achieving these preconditions
within three years from the date the Tarapore Committee was constituted.
The Tarapore Committee also recommended change in the legislative framework governing foreign exchange transactions.
Accordingly, FERA which formed the statutory basis for exchange control in India, was repealed and replaced by the
FEMA with effect from June 2000.
Proposed Structural Reforms