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From the 1991 India economic crisis to its status of fourth largest economy in the world by 2010, India

has grown significantly in terms of economic development. So has its banking sector. During this period,

recognizing the evolving needs of the sector, the Finance Ministry ofGovernment of India (GOI) set up

various committees with the task of analyzing India's banking sector and recommending legislation and

regulations to make it more effective, competitive and efficient.[1]

Two such expert Committees were set

up under the chairmanship of M. Narasimham. They submitted their recommendations in the 1990s in

reports widely known as the Narasimham Committee-I (1991) report and the Narasimham Committee-II

(1998) Report. These recommendations not only helped unleash the potential of banking in India, they

are also recognized as a factor towards minimizing the impact of global financial crisis starting in 2007.

Unlike the socialist-democratic era of the 1960s to 1980s, India is no longer insulated from the global

economy and yet its banks survived the 2008 financial crisis relatively unscathed, a feat due in part to

these Narasimham Committee

Tandon Committee on Follow-up of Bank CreditThe group (headed by Sh. Prakash Tandon) was appointed in July 1974 which was to frameguidelines for follow-up of bank credit and submitted its final report during 1975 and gavefollowing recommendations, applicable to borrowers availing fund based working capital limits ofRs. 10 lac or more:

Norms for inventory and receivables

Norms for 15 major industries proposed by the committee now have more than 50 disintegratedindustry groups. Normally the borrower would not be allowed deviations from norms except incase of bunched receipt of raw material, power cuts, strikes, transport delays, accumulation offinished goods due to non-availability of shipping space for exports, build up of finished goodsstocks due to failure on the part of purchasers. For those units which are not covered by thenorms, past trends to be made the basis of assessment of working capital. (Discretion given toindividual banks for deviations in norms)

Approach to lending

The committee suggested three methods of lending out of which RBI accepted two methods forimplementation. According to First Method, the borrower can be allowed maximum bank financeupto 75% of the working capital gap (working capital gap denotes difference between total currentassets required and amount of finance available in the shape of current liabilities other than shortterm bank borrowings). The balance 25% to be brought by the borrower as surplus of long termfunds over the long term outlay.

As per Second Method of lending, the contribution of the borrower has to be 25% of the totalcurrent assets build-up instead of working capital gap. (Method of lending as per Vaz Committeewill now apply to borrowers availing working capital fund based limits of Rs. 100 lac or more only)

Other major recommendations of the committee were: No slip back in current ratio, normally.

Classification guidelines for Current assets and current liabilities.

Identification of excess borrowing.

Information system, which was modified by Chore Committee Recommendations.

Bifurcation of limits into loan and demand component

http://en.wikipedia.org/wiki/1991_India_economic_crisishttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)http://en.wikipedia.org/wiki/Banking_in_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Narasimham_Committee_on_Banking_Sector_Reforms_(1998)#cite_note-PMPIB-0http://en.wikipedia.org/wiki/Narasimham_Committee_on_Banking_Sector_Reforms_(1998)#cite_note-PMPIB-0http://en.wikipedia.org/wiki/Narasimham_Committee_on_Banking_Sector_Reforms_(1998)#cite_note-PMPIB-0http://en.wikipedia.org/wiki/M._Narasimhamhttp://en.wikipedia.org/wiki/Financial_crisis_(2007%E2%80%93present)http://en.wikipedia.org/wiki/Social_democracyhttp://en.wikipedia.org/wiki/2008_financial_crisishttp://en.wikipedia.org/wiki/2008_financial_crisishttp://en.wikipedia.org/wiki/Social_democracyhttp://en.wikipedia.org/wiki/Financial_crisis_(2007%E2%80%93present)http://en.wikipedia.org/wiki/M._Narasimhamhttp://en.wikipedia.org/wiki/Narasimham_Committee_on_Banking_Sector_Reforms_(1998)#cite_note-PMPIB-0http://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Banking_in_Indiahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)http://en.wikipedia.org/wiki/1991_India_economic_crisis