NARASIMHAM COMMITTEE’S ANDTHE ASSET RECONSTRUCTIONCOMPANIES
Presented by: SaurabhYeolkar Sowmia Surendran Suresh Jain Vidita Vanage Vinay Patel Vishmita Vanage
NARASIMHAM COMMITTEE REPORT1991 (COMMITTEE ONFINANCIAL SYSTEMS)
INTRODUCTION The 1st Narasimham Committee was set up by Manmohan Singh as India’s Finance Minister on 14th August 1991 ...
To Study : Structure Organisation Functions ProceduresTo Recommend:Improvements in Efficiency Productivity Profit...
RECOMMENDATIONS1. Structural Reorganisation of the Banking Structure: Committee proposed a substantial reduction in the n...
RECOMMENDATIONS4. Setting up of Assets Reconstruction Fund: “Assets Reconstruction Fund” to take over from the nationalis...
RECOMMENDATIONS7. Statutory Liquidity Ratio (SLR) & Cash Reserve Ratio (CRR): The SLR should be gradually reduced from th...
RECOMMENDATIONS10. Banks in the Private Sector: The Reserve Bank of India should permit the setting up of new banks in ...
NARASIMHAM COMMITTEE II –1998 (COMMITTEE ON BANKING SECTOR REFORMS)
INTRODUCTION The 2nd Narasimham Committee was set up by P.Chidambaram as Finance Minister of India in December 1997 It ...
Review Progress &Implementation of banking reforms Furthur Strengthening of fina...
RECOMMENDATIONS1. Autonomy in banking Greater autonomy was proposed for the public sector banks – in both ownership & ma...
RECOMMENDATIONS3. Stronger banking system Merger of the strong banks – to make them strong enough for supporting intern...
RECOMMENDATIONS5. Non performing assets need for zero non-performing assets for all Indian banks with International pre...
OTHER RECOMMENDATIONS Need for computerisation process in public sector banks Higher capital adequacy requirements for b...
IMPLEMENTATION OF RECOMMENDATIONSSuccessfully Implemented: The concept of a universal bank was discussed by the RBI and f...
Asset reconstruction companyAsset reconstruction means acquisition by any securitization companyor reconstruct...
Need for an ARC No credit institution Built-in professional expertise in this task, and who handle recovery as their...
Different Models of ARCsBased on Based onownership multiplicity Based on Resolut...
 Asset workout departments or units of banks  Bank subsidiaries and Ba...
Based on Multiplicity: Based on Resolution Approach:
Asset Reconstruction Companies – The Indian ScenarioThe idea of Asset Reconstruction first surfaced in the Narasimhan Comm...
Asset Reconstruction Company of India Ltd. (ARCIL)
Shareholding Pattern: Equity Base: Rs. 10 crore Institution Stake % Amount(Rs. ...
Methodology to be adopted Funds ADB NPAs ...
Assets Care Enterprise Ltd (ACE)Shareholding Pattern: Equity Base: Rs. 5 croreInstitution ...
Todays scenario Bad debts are rising as borrowers default due to slowing economy, high interest rates Arcil expects t...
narsimha committe report
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narsimha committe report

Published on: Mar 3, 2016
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Transcripts - narsimha committe report

  • 1. NARASIMHAM COMMITTEE’S ANDTHE ASSET RECONSTRUCTIONCOMPANIES
  • 2. Presented by: SaurabhYeolkar Sowmia Surendran Suresh Jain Vidita Vanage Vinay Patel Vishmita Vanage
  • 3. NARASIMHAM COMMITTEE REPORT1991 (COMMITTEE ONFINANCIAL SYSTEMS)
  • 4. INTRODUCTION The 1st Narasimham Committee was set up by Manmohan Singh as India’s Finance Minister on 14th August 1991 A nine member committee was set up under the chairmanship of M. Narasimham, a former Governor of Reserve Bank of India The Committee submitted its Report to the Finance Minister NARASIMHAM in November 1991 COMMITTEE REPORT - I
  • 5. To Study : Structure Organisation Functions ProceduresTo Recommend:Improvements in Efficiency Productivity Profitability
  • 6. RECOMMENDATIONS1. Structural Reorganisation of the Banking Structure: Committee proposed a substantial reduction in the number of public sector banks through mergers and acquisitions 8 to 10 3 to 4 large national Local Banks Rural Banks banks banks2. Freedom to Foreign Banks to open Offices: The Government should allow foreign banks to open offices in India either as branches or as subsidiaries3. Removal of the Duality of Control of Banks: The present system of dual control over the banking system between Reserve Bank and the Banking Division of the Ministry of Finance should end immediately
  • 7. RECOMMENDATIONS4. Setting up of Assets Reconstruction Fund: “Assets Reconstruction Fund” to take over from the nationalised banks and financial institutions, a portion of their bad and doubtful debts at a discount5. Special Tribunals for Recovery of Loans: The committee recommended that special tribunals should be set up for recovering loans granted by banks6. Directed Credit Programmes: Gradually phase out the directed credit programme Redefine the concept of priority sector – to include only the weakest section of the rural community.
  • 8. RECOMMENDATIONS7. Statutory Liquidity Ratio (SLR) & Cash Reserve Ratio (CRR): The SLR should be gradually reduced from the present 38.5 per cent to 25 percent over the next five years The CRR should be progressively reduced from the present high level of 15 per cent to 3 to 5 per cent.8. De-regulation of Interest Rates: All the controls and regulations on interest rates on lending and deposit rates of banks and financial institutions should be removed9. Capital Adequacy: By March 1996 the banks should achieve 8 per cent capital adequacy ratio as recommended by Basel Committee
  • 9. RECOMMENDATIONS10. Banks in the Private Sector: The Reserve Bank of India should permit the setting up of new banks in the private sector, provided they satisfy all the conditions and norms prescribed by the Reserve Bank11. Free and Autonomous Banks: The public sector banks should be free and autonomous.12. Proper Classification of Assets: The assetsof bank should be classified into 4 categories: (a) standard (b) sub-standard(c) doubtful, and (d) loss assets Full disclosures of assets and liabilities should be made in the balance-sheets of banks
  • 10. NARASIMHAM COMMITTEE II –1998 (COMMITTEE ON BANKING SECTOR REFORMS)
  • 11. INTRODUCTION The 2nd Narasimham Committee was set up by P.Chidambaram as Finance Minister of India in December 1997 It is also known as the Committee on Banking Sector Reforms The Committee submitted the report to the Finance Minister Yashwant Sinha in April 1998 NARASIMHAM COMMITTEE REPORT - Ii
  • 12. Review Progress &Implementation of banking reforms Furthur Strengthening of financial institutions of India Focus on : Size of the Banks, Capital Adequacy Ratio
  • 13. RECOMMENDATIONS1. Autonomy in banking Greater autonomy was proposed for the public sector banks – in both ownership & management GOI equity in nationalized banks be reduced to 33% Professionalising and depoliticising bank board Review "of recruitment procedures, training and remuneration policies2. Reform in the role of RBI to segregate regulatory and supervisory function of RBI need for RBI to maintain in an arms length form those being regulated the need for withdrawing RBI nominee for bank boards
  • 14. RECOMMENDATIONS3. Stronger banking system Merger of the strong banks – to make them strong enough for supporting international trade A three tier banking sector in India Large banks – 8 to 10 Large no. – International National Regional & Banks Banks Local Banks4. Capital adequacy and tightening of provisioning norms Raising the capital adequacy ratio to 9% by 2000 and 10% by 2002 have penal provisions for banks that fail to meet these requirements
  • 15. RECOMMENDATIONS5. Non performing assets need for zero non-performing assets for all Indian banks with International presence A need for creation of Asset Reconstruction Funds or Asset Reconstruction Companies to take over the bad debts of banks, allowing them to start on a clean-slate6. Entry of Foreign Banks foreign banks seeking to set up business in India should have a minimum start-up capital of $25 million as against the existing requirement of $10 million
  • 16. OTHER RECOMMENDATIONS Need for computerisation process in public sector banks Higher capital adequacy requirements for banks Setting up of small local banks which would be confined to states or cluster of districts in order to serve local trade, small industry, and agriculture Urgent Need to review and amend the provisions of: - RBI Act - Banking Regulation Act - Bank Nationalisation Act - State Bank of India Act
  • 17. IMPLEMENTATION OF RECOMMENDATIONSSuccessfully Implemented: The concept of a universal bank was discussed by the RBI and finally ICICI bank became the first universal bank of India 17 banks were considered eligible for autonomy CRR and SLR has been brought down gradually over the years There were a string of mergers in banks during late 90s and 2000sStill awaiting government approval : Issue of greater professionalism Issue of the board of directors of public sector banks Reduction in Governments equity to 33%
  • 18. Asset reconstruction companyAsset reconstruction means acquisition by any securitization companyor reconstruction company, of any right or interest of any bank orfinancial institution in any financial assistance, for the purpose ofrealization of such financial assistance.
  • 19. Need for an ARC No credit institution Built-in professional expertise in this task, and who handle recovery as their core business.
  • 20. Different Models of ARCsBased on Based onownership multiplicity Based on Resolution Approach
  • 21.  Asset workout departments or units of banks  Bank subsidiaries and Bank affiliatedBased on companiesOwnership
  • 22. Based on Multiplicity: Based on Resolution Approach:
  • 23. Asset Reconstruction Companies – The Indian ScenarioThe idea of Asset Reconstruction first surfaced in the Narasimhan Committee ReportsThe Second Narasimhan Committee Reportrecommended that the core NPAs of the bankswould be transferred to a new entity (an ARC)which, in turn, would issue NPA swap bonds at therealisable value arrived at after due assessment.
  • 24. Asset Reconstruction Company of India Ltd. (ARCIL)
  • 25. Shareholding Pattern: Equity Base: Rs. 10 crore Institution Stake % Amount(Rs. Crores) ICICI Bank 24.5 2.45 IDBI 24.5 2.45 SBI 24.5 2.45 HDFC 10.0 1.00 HDFC Bank 10.0 1.00 Clutch of banks (incl Federal Bank 06.5 0.65 & IDBI Bank) Total 100 10.00
  • 26. Methodology to be adopted Funds ADB NPAs Banks & FIs ARC Creation of NPA Portfolios based on various criteria PTCs or Units or SPV1 SPV2Securities SPV3 Maturity Industry Location Based Based Based
  • 27. Assets Care Enterprise Ltd (ACE)Shareholding Pattern: Equity Base: Rs. 5 croreInstitution Stake % Amount (Rs. Crores)IFCI Ltd. 49.00 2.45Punjab National Bank 26.00 1.30Tourism Finance Corporation of 14.20 0.71Life Insurance Corporation of 10.00 0.50Madhya Pradesh Consultancy 00.80 0.04Organisation Total 100.00 5.00
  • 28. Todays scenario Bad debts are rising as borrowers default due to slowing economy, high interest rates Arcil expects to acquire Rs. 1,000–1,300 crore of assets this year, up from Rs. 20– 24 crore in the last fiscal Bad debts in the banking industry have crossed Rs. 1 trillion and are rising as slowing economic growth, which fell to 6.5% in the last fiscal from 8.4% in the previous year, and high interest rates cause borrowers to default on their debts. A government advisory group on ARCs suggested in December that they be allowed to buy bad debts from non–banking financial companies (NBFCs) as well. This will enlarge the pool of assets available for ARCs and will give them better negotiating power as well. India has more than 50 ARCs, with Arcil controlling more than 70% of the distressed assets market. One more issue between banks and ARCs is that the banks prefer to get cash; for larger assets, ARCs issue security receipts (SRs) that they redeem after recovering loans from defaulters.

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