Narasimhan the national gold reserves as a pledge

Committee I on
Banking Sector Reforms 1991 -1998

Nationalization of banks, the geographical coverage of our banking and
financial institutions was increase. Despite impressive quantitative
achievement, the banks are suffered with low efficiency and productivity, bad
portfolios performance, and eroded profitability. At the end of 1990, several
public sector banks and financial institutions was incurring losses year after
year, which creates a serious economic crises in country. Government was close to default and RBI is refused to
new credit. Foreign exchanges reserves reduced at such a point that country
could barely finance three weeks worth of imports, which leads the Indian government
to airlift the national gold reserves as a pledge   to International
Monetary Fund (IMF) to loan
money to meet its financial obligations. In the light of these requirements,
two expert Committees were set up in 1990s under the chairmanship of M. Narasimham (an
ex-RBI governor) which are widely credited for spearheading the financial
sector reform in India.

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The first Narasimhan Committee (Committee on the Financial System – CFS) was appointed by Manmohan Singh as
India’s Finance Minister on 14 August 1991, which is widely, came to be known as
the Narasimham Committee-I

Problems identified by the Narasimham Committee-I

Directed Investment Program:
Statutory Liquidity Ratio (SLR) and Cash Reserve
Ratio (CRR) was as higher at 38.5 per cent and 15 per cent respectively

Directed Credit Program: Since
nationalization the government has encouraged the lending to agriculture and
small-scale industries by giving funds to them on very less interest rate. According
to government, it was successful but in banks are suffered. It is known as the
directed credit program. According to Narasimham committee, credit on low rate
of interest is also
the reasons of poor profitability.

3. Interest Rate Structure: The committee found that the
interest rate and rate of interest are decided by government of India and philosophy
government to give loans on subsidized rates to some sectors. The committee found
that there is no need to give loans on concessional rates, it made banks handicapped
and growth of banks is impossible with this.

4. Additional Suggestions: Committee also suggested interest
rate is decided on on grounds of market forces. It further suggested minimizing
the slabs of interest.

The main
recommendations of the Committee were:

Reduction in the Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR):
The committee recommended the reduce of Statutory Liquidity Ratio (SLR) from
38.5 per cent to 25 per cent and Cash Reserve Ratio (CRR) from 15 per cent to 3
to 5 per cent.

Phasing out of directed credit program and redefinition of the priority sector.

Adoption of minimum capital adequacy ratio of 8 per cent by March, 1996.
(Capital adequacy ratios (“CAR”) are a measure of the amount of a
bank’s capital expressed as a percentage of its risk weighted credit

CAR= Capital/Risk

Establishment of uniform accounting in regard to income recognition, asset
classification and provisioning against bad debts and doubtful debts.

Setting up of separate special tribunals to speed up the cases related to
recovery of bad loans.

Introduction of Asset Reconstruction Funds (ARFs) which can undertake a portion
of bad loans and advances at a discount.

Branch licensing system is abolished.

Adoption of the Liberalizing policy to allow foreign banks to open their offices
in India.

Allow Banks to recruit officers by their own way.

 10. Revised selection procedure
of Chief Executives and Directors of Boards of public sector banks.

Adoption fast track of liberalization of money and capital market.

Make a separate legislation body to supervise the legal framework for mutual
funds and making strict norms for such institutions, etc.


The Narasimham-II Committee (1998).

The second Committee
on Banking Sector Reforms was appointed by P. Chidambaram  as Finance Minister in December 1997. The Narasimham-II Committee is starts working in

The Narasimham-II Committee was asked
to “review the progress of banking sector reforms to date and a programme on
financial sector reforms to strengthen India’s financial system and make it
internationally competitive”. It focused on
issues like size of banks and capital adequacy ratio among other things. This committee was
submitted its report to the government in April 1998 with following

1. Strengthening Banks
in India: The committee considered the stronger banking
system in the context of the Current Account Convertibility ‘CAC’. It thought
that Indian banks must be capable of handling problems regarding domestic
liquidity and exchange rate management in the light of CAC. Thus, it
recommended the merger of strong banks which will have ‘multiplier effect’ on
the industry.

2. Narrow Banking:
A bank may be concentrating only on collection of funds through deposits and
lending or investing of those funds within specific or certain chosen schemes
like investment only in government or risk free securities. This type of investment
is restricting the banking activities are referred to ‘Narrow Banking’
(Natrajan & Parameswaran, 2012. Indian
Banking). The committee recommended ‘Narrow Banking Concept’ where weak
banks will be allowed invest funds in short term and risk free assets.

3. Capital Adequacy
Ratio (CAR): To make strength the Indian banking sector
the committee recommended that the government enhance the given capital
adequacy norms. Currently the capital adequacy ratio of Indian banks at 9

4. Bank ownership:
It suggests reviewing the functions of board, and allowed them to adopt new professional
corporate strategy.

5. Review of banking
laws: The committee finds that there is urgent need of reviewing
rules and laws by government like RBI Act, Banking Regulation Act, State Bank
of India Act, Bank Nationalization Act, etc. This up gradation will bring them
in line with the present needs of the banking sector in India.

from these major recommendations, the committee has also recommended faster
computerization, technology up gradation, training of staff, depoliticizing of
banks, professionalism in banking, reviewing bank recruitment, etc.


1.2 Role of Technology in Banking

Liberalization the Indian Banking sector is doing their business in a very slow
manner. In 1990, the revolution is came by privatization & liberalization
in banking sector. In this era foreign banks & private banks came in
existence by issuing Licenses from Reserve Bank of India. By do this Indian
banks are faced intense competition from these banks due to Introduction of
Information technology in banking sector. Banks provide services of information
technology as mobile banking, internet banking, automated teller machine (ATM)
etc. A common definition for electronic banking comes from the Basel Committee
on Banking Supervision: “e-banking includes the provision of retail and small
value banking products and services through electronic channels as well as
large vale electronic payments and other wholesale banking services delivered
electronically” (BCBS, 1998).

Technology is refers to storing, processing and transferring of information
with the use of personal computers, telephones, mobile phones, fax machines
etc. Technology has changed the banking process from traditional banking. It
gives extra edged to the banking industry to enhance customer base as well
reach geographical distant and complex markets. It is a fastest and cheapest
way for delivery of banking products and services. Customers can also get
benefits by get instant account statements, transfer funds, fixed deposits and
purchase drafts by just browsing bank’s website through their pc or mobile
app’s. (Dhadwal & Rajinderkapil, 2017).

1.2.1 Development
in banking by IT

is emerged as a back bone of the banking industry. It helped in enhancement of
efficiency and transparency of banking system as well as changed the structure
of banking system. Some of the changes came after introduction of modern
technology in banking as follows:-





Pankaj Goel & Shobhna)

1. Core banking
Solutions (CBS): Before introduction of Information
Technology (IT) in the Banking. The customers were recognized by the customer
of the branch of the bank. It means the detail of the customer is available in
the branch only and the services are providing to customer from his home Branch
only. If customer wants to avail banking services from some other branch, then
the detail of the customer is transfer from home Branch to other Branches
manually and it takes much time.

Introduction of IT in Banking, Banking are changed from not only taking deposits
and providing loans to an  institution to
provides an catalogue of products & services under one roof. All these
activities are performed by bank is called Core Banking.

Core banking Solution, Customers can avail facilities of bank at any nearest
bank branch. It is happen only because customers account detail is store in
Central server of the Bank and this detail of customer is available to all the
Branches of bank.

Centralized branch automation (CBA):
RBI taken step for Centralized branch automation, bank has using Centralized
branch automation software in those branches were they are doing 80% of their business
of the bank. These branches are introduced single customer ID concept in which
all the accounts of the customer can be recovered.

Computerization: Computerization is
introduced in banking since 1993. By the introduction of computerization the revolution
is come in industry. It is necessary to cope-up from the overload of work as
required for further growth. It can help in reduce corruption, increased
accuracy, transparency, improve customer care and customer service capability
and increase customer satisfaction. Computerization is increase the working
efficiency of banks as well as caters large number of customers from one
branch. This is an earlier impossible to given instant service to customers.

4. Internet banking:
“Internet banking” refers to systems that enable bank customers to access
accounts and general information related to bank products and services through
a personal computer (PC) or other electronic device (Chakraborty, 2015). Internet Banking
also called on-line banking is nothing more than traditional banking services
delivered through an electronic communication device viz. the internet. Internet
Banking can facilitate customers to use their services by browsing banks
website from their person computer. It allows customers of bank to operate their
banks accounts, make transactions, make money transfers, bill payments and
carry on their business 24 hours, seven days a week access.

(i) Basic Level services Websites
in which banks Provide information about the products & services provided
to the customers.

(ii)Non-Transactional Websites
in which customers can check account balances, transactions, ordering cheque
books and downloading statements.

Transactional Banking Websites in
this customer can transfer funds in their accounts as well as third party
transfer, investment, application of loans, application for credit cards,
payment of bills (utility bills, mobile bills) and deposits.  (Source: P. N. Varshney, 1986 Banking Law and

Mobile banking: Mobile banking is
relatively a new form of electronic banking has become one of the customer
friendly facilities; it takes the bank to the customer’s cell phone. Mobile
banking is a convenient mode of using banking services and make financial
transactions with the help of Mobile apps or Mobile telecommunication devices
24 hours a day, seven days a week access. Use of Mobile banking in three ways SMS messaging; mobile web; or through apps. Mobile
apps are software application which is provided by the bank. This application
can be downloaded directly from the bank website or from i-tunes store. It
helps in instant excess of their account balance, check the latest transaction,
fund transfers, bill payments etc. (Source: P. N. Varshney, 1986 Banking Law
and Practice)

Automated teller machine (ATM): By
the end of 1990, private and public sector banks in India came up with their
own Automated teller machine (ATM) net works under the initiative of the Indian
Banks Association in Mumbai. The Bank of India was the first nationalized bank
to render ATM facilities to its customers in Mumbai. Automated teller machine
is also known as automatic teller machine. It is a electronic outlet of bank
which allows customers to complete transactions, particularly cash withdrawal,
fund transfer in own account or others account, check account balances etc.
without the help bank employee or bank teller 24/7.There are two primary types
of ATMs.

The basic machines which allow customers to withdrawal cash, fund transfer and
check mini statement of their account.

The more Complex and advanced Machines which accepts cash and update account
instantly. To use advanced features of the complex machine, the customer has to
open his account with bank which operates the machine.

P. N. Varshney, 1986 Banking Law and Practice)

Magnetic ink character recognition (MICR)
cheque processing: As the name suggest MICR is a Character Recognition and
Technology used in banking industry for speed up the processing and clearance
of cheques. RBI is given each bank branch its own unique MICR code which helps
to increase the pace of cheque clearing process. Magnetic inks bar codes are
printed on the bottom of every bank branch cheque leave.

is contained nine digit numeric codes where each three digits contained some
important detail of bank. The first three digits represents the city code (bank
branch is located in which city).Next three digit represents the bank code
(name of the bank) and last three digits represents the bank branch code (to
identify the location of bank branch in city). (Source:

Plastic money (Credit/Debit cards): Plastic
Money refers to the hard plastic cards we can use for make payments instead of
actual bank notes. Credit cards and debit cards are the two popular plastic
cards issue by the banks or financial institutions.

(i) Credit card:
Credit card refers to purchase in credit and pay later. It allows the card
holder to withdrawal cash, also permits to purchase goods and services up to
the set spending limit.

(ii) Debit cards:
Debit card is directly linked with the card holder’s bank account and permit
him to spend up to the cash balance is available in the account. Debit card is
associated with the concept of “pay now” As the card used for purchase goods
and services immediately amount is deducted from the bank account associated
with card. (Source: P. N. Varshney, 1986 Banking Law and Practice)

Effective use Customer
Relationship Management (CRM) with IT.

general Customer Relationship Management (CRM) is the concept of business
strategy built with the view point of providing improved customer service.
Customer relationship management practices relates with the communication and
also deals with organization has with its own clients, whether they are linked
with product and service. Customer relationship management works for the higher
customer satisfaction as well as increasing business wealth. By knowing your
customers better will make you to serve them in a better way and keep them
loyal. This is the main theme of customer relationship management. However, the
understanding of the term customer relationship management is still incomplete
and developing by the time has passed. Some authors said customer relationship
management as a business strategy, as a philosophy, as a business process, as a
technological tool or as a policy framework. As a business strategy CRM is a
customer focused strategy with the aim of increase customer satisfaction level
as well as customer loyalty by providing more effective and customized services
to each customers. CRM as a business philosophy according to R. Lynette &
K. Simon (2001) “CRM is a relationship orientation, customer retention and
superior customer value created through process management”. CRM as business
process according to R. K. Srivastava, T.A. & L. Fahey (1999) “defines as a
highly macro-level processes that subsumes large number of subprocesses, such
as identification of customers, creation of customer knowledge, build customer
relationship and shaping their perception”. CRM as a technology according to M.
H. Hsieh (2009) “CRM is an enabling technology for organizations to foster
closer relationships with their customers”. As a policy CRM is a customer
focused system in which policies and strategies are framed to retain the existing
customers, generated references and also focus on new customers by the aim of
increasing the business income.

Efficient Digital

fast evolving global information infrastructure including information
technology and computer networks such as the Internet and telecommunications
systems. This system has made universal development of electronic commerce at a
global level. The closely universal connectivity worldwide has been offered by
Internet. It is an invaluable business tool with the banks has made the
personal life of the customers not only easy but comfortable also. The time
saving is tremendous and the time value is measured in terms of money. These
developments have created a new type of economy, which is termed as ‘digital
economy’. This fast developing economy is bringing with it rapidly changing
technologies due to that there is increase in knowledge as well as also give
new forms of business and service delivery channels such as E-banking. E-bank
is the electronic bank that provides the financial service for the individual
client by means of Internet (Dhadwal & Rajinderkapil, 2017).

1.3 Risks of IT in Banking

banking, electronic banking and other modes of e-banking have been a blessing
for banking as far as speed, convenience and cost of delivery is concerned, but
alongside it has brought many risks” (Solanki, 2012). By growing competition in
the banking sector Information technology plays important role in acquiring an
adequate market share in industry for every bank. But side by side there is
also risk of data breach is immense. It is a challenge for the banks to secure
their customer data as well as given confidence to their customers to maximum
use of internet banking. To save the data and information from theft by the
intent of crime, frauds etc.

Types of Risks

Banks has to
upgrade their system to save customers data by giving unique identification
number & protect the main server of bank by arranging firewall, which can
save the data of bank network from the users of other networks by set a device
configured to permit and deny.









(Source: Solanki,

1. Fraud mobile apps: Due to the large number of mobile Apps,
it is very difficult to give ranking fraud, is the key challenge in front of
the mobile App market (Ranjitha, at al. (2016). Customers are assumed if
the application is downloaded from application store is authenticated, But some
fake applications are made exactly similar. Fraud apps are made to access your
financial information with the intention of crime. Download app directly from
your bank website for avoid these scams.

2. Identity theft: The criminals are using the identity of others for financial gain. In
today’s environment, an individual is often need to disclose personal
information, such as phone numbers, a signature name, address, banking and card
detail. If criminals able to access this information on the basis of this
information he or she commit fraud in the customer’s name. (Richard
J. Sullivan, 2008).

3. Phishing:
Hackers sending randomly emails to people with fake links trying to get
sensitive information of those people who click on that link, such as username,
passwords and credit card detail etc. The criminals do not have a specific
target in mind, nor do they know exactly who will fall victim. They simply know
the more emails they send out, the more people they may be able to fool.
(Source: The monthly security awareness newsletter for computer user, The SANS
Institute 2013).

4. Reputation risk: Reputation
risk is the risk of negative image of bank due to negative public opinion. Bank
reputation is negative by internet banking services due to giving limited
connectivity or poor software. If customers are unhappy with the services of
the bank, then there is rare chance, to forgive by customers. This is not good
for the growth of institution (Solanki, 2012).

5. Card Skimming:
ATM Skimming is a world-wide problem. Card skimmer are a devices used by
criminals to capture card holder data from magnetic strip. Criminals are
installed this device top inside the card reader in ATM’s. When consumer
inserts his card into the card reader, skimmer captures the card information
before passing it into ATM’s card reader. 
Skimmer allows downloading personal data of everyone who used the ATM.
This sensitive Information of consumer is passed through this skimmer device.

6. Transactions/Operations
risk: Transaction operation risk is a high level of risk
arises due to various internal and external factors. It can be exists with
negligence or without proper planning, implementation or proper evaluation. The
risk incurred due to the delivery of each product and services in which the
transaction risk is affected by the structure of institution’s processing
environment. The complexity by which the services offered and by which the
processes and supporting technology. If bank is offering some scheme through
internet banking but at the end bank unable to given such services the
customers are face problems (Solanki, 2012).

7. Safety of user id
& passwords: Consumers are habit to use similar user
id & password in all online accounts. If the email account is hacked, then
the sensitive information is also leaked. Hacker can steal your money by using
your information. To avoid this scam frequently changed your usernames and


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