Question

Which one of the following is not a recommendation of the Committee on the Financial System (Narasimhan Committee 1)?

• A. Reaching of 8% capital adequacy ratio in banks
• B. Setting up of asset reconstruction fund
• C. The banks to reduce their NPAs to 3% by 2002
• D. Deregulation of interest rates

Answer 1

Answer:

C. The banks to reduce their NPAs to 3% by 2002

The Committee on the Financial System (Narasimhan Committee I), established in 1991, made several recommendations to reform India's financial system. The correct recommendations are: Reaching an 8% capital adequacy ratio in banks (to ensure banks' stability). Setting up an Asset Reconstruction Fund (to tackle NPAs). Deregulation of interest rates (to promote competition and efficiency). However, the committee did not specify reducing NPAs to 3% by 2002. Narasimhan Committee II (1998) recommended reducing NPAs, but the specific target of 3% by 2002 is not mentioned in either report. Narasimhan Committee I (1991) focused on: 1. Banking sector reforms 2. Capital adequacy 3. Prudential norms 4. Financial sector deregulation Narasimhan Committee II (1998) focused on: 1. Banking sector consolidation 2. NPA reduction 3. Financial sector stability