State some recent development in Indian Banking Policy since the early 1990s and also list their consequences.

State some recent development in Indian Banking Policy since the early 1990s and also list their consequences. 

Ans. Some of the recent developments in Indian banking policy are as follows:

1. Prudential norms were introduced for income recognition, asset classification, provisioning for delinquent loans and for capital adequacy. In order to reach the stipulated capital adequacy norms, substantial capital were provided by the Government to PSBs. 

2. Government pre-emption of banks’ resources through statutory liquidity ratio (SLR) and cash reserve ratio (CRR) brought down in steps. Interest rates on the deposits and lending sides almost entirely were deregulated. 

3. New private sector banks are allowed to promote and encourage competition. PSBs were encouraged to approach the public for raising resources. Recovery of debts due to banks and the Financial Institutions Act, 

4. 1993 was passed, and special recovery tribunals set up to facilitate quicker recovery of loan arrears. 

5. Bank lending norms liberalized and a loan system to ensure better control over credit introduced. Banks asked to set up asset liability management (ALM) systems. RBI guidelines issued for risk management systems in banks encompassing credit, market and operational risks. 

6. A credit information bureau is being established to identify bad risks. Consequences of these developments have been a mixed. 

1. The process of reforms has all along been predesigned with a long-term vision. The two Committees on financial sector reforms (Narasimham Committee-I and II) have outlined a clear long-term vision for the banking segment particularly in terms of ownership of PSBs, level of competition, etc. 

2. Reform measures have been all pervasive in terms of coverage of almost all problem areas. In fact, it can be said that, it is difficult to find an area of concern in the banking sector on which there has not been a Committee or a group. 

3. Most of the reform measures before finalization or implementation were passed through a process of extensive consultation and discussion with the concerned parties. 

4. Most of the reform measures have targeted and achieved international best practices and standards in a systematic and phased manner. . 

5. All the reform measures and changes have been systematically recorded and are found in the annual reports as well as in the annual publications of RBI on “Trend and Progress of Banking in India”. The banking system, which was over-regulated and over administered, was freed from all restrictions and entered into an era of competition.