Monetary
and Financial Sector Reforms
Monetary
reforms aimed at doing away with interest rate distortions and rationalizing
the structure of lending rates.
The new
policy tried in many ways to make the banking system more efficient. Some of
the measures undertaken were:
a. Reserve
Requirements: Reduction in statutory liquidity ratio (SLR) and
the cash reserve ratio (CRR) were
recommended by the Narasimham Committee Report, 1991. It was proposed to cut
down the SLR from 38.5 percent to 25 percent within a time span of three years.
Similarly, it was proposed that the CRR be brought down to 3 to 5% over a
period of four years.
b.
Interest
Rate Liberalisation: Earlier, RBI controlled (i) the interest rates
payable on deposits, (ii) the
interest rates which could be charged for bank loans.
c.
Greater competition among public sector, private
sector and foreign banks and elimination of administrative constraints.
d.
Liberalisation of bank branch licensing policy in
order to rationalize the existing branch network.
e.
Banks were given freedom to relocate branches and
open specialized branches Guidelines for opening new private sector banks.
f.
New accounting norms regarding classification of assets
and provisions of bad debt were introduced in tune with the Narasimham
Committee Report.
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