Terms Associated with Banking/Banking Sector Reforms

Terms Related to Banking System Banking Sector Reforms

Terms Associated with Banking

Planned Economic Development adopted by India required an active monetary policy. The two stated aims of this policy were:
• Boost economic development
• Control inflationary pressures
The RBI is the main agency for implementing the monetary policy. RBI has defined its monetary policy in terms of ‘adequate financing of economic growth and at the same time ensuring reasonable price stability’. The instruments which RBI employs to achieve a stable monetary policy include:

• Rate at which the central bank lends to commercial banks. In other words, it is the rate at which RBI rediscounts the bill of exchange.
• It thus acts as a signal to the economy on the direction of the monetary policy. RBI uses changes in Bank Rate to regulate fluctuations in exchange rate and domestic inflation.
• Each bank is free to decide the Base Rate below which it will not lend to borrowers. Banks should declare the benchmark based on which such Base Rates are decided. One bank can have only one Base Rate.
• At present it is 6.75%.

• Every Commercial Bank is required to keep a certain percentage of its demand and time liabilities (deposits) with the RBI (either as cash or book balance).
• The RBI varies this ratio as and when it perceives the need to increase or decrease money supply. RBI is empowered to fix the CRR at a rate ranging between 3 per cent and 15 per cent.
• RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.
• At present the CRR is 4%.

• Commercial Banks are also required to keep (in addition to CRR) a certain percentage of their net demand and time liabilities (NDTL) as liquid assets in the shape of cash, gold or approved securities.
• As most of the SLR money is kept in treasury bills, government had, in the past, been using SLR as a means to mobilize low cost resources. This abuse of SLR leads to distortion in the interest rate and credit supply.
• In order to overcome this, Narasimhan Committee recommended that SLR should be brought down to 25 per cent, which is the current rate since 1993-94.
• At present the SLR is 20.50%.

• This refers to the RBI buying and selling eligible securities to regulate money supply.
• Traditionally, RBI was not resorting to this method. However, after the large inflow of foreign funds since 1991, RBI has had to step in to sterilize the flow to avoid excess liquidity.

• Liquid Adjustment Facility is a monetary policy tool which allows banks to borrow money through repurchase agreements. LAF is used to aid banks in adjusting the day to day mismatches in liquidity. LAF consists of repo and reverse repo operations.

Repurchase Option (REPO) is the rate at which RBI lends to commercial banks. In other words, it is the rate at which our banks borrow rupees from RBI.
• Whenever, the banks have any shortage of funds they can borrow it from RBI. A reduction in the Repo Rate will help banks to get money at a cheaper rate.
• When the Repo Rate increases, borrowing from RBI becomes more expensive.
• At present the Repo Rate is 6.25%.

• The rate at which Reserve Bank of India (RBI) borrows money from banks and hence exact opposite of Repo Rate.
• RBI uses this tool when it feels there too much money floating in the banking system. Banks are always happy to lend money to RBI since their money is in safe hands with a good interest.
• An increase in Reverse Repo Rate can cause the banks to transfer more funds to RBI due its attractive interest.
• RBI resorts to the Repo Route to fine tune the liquidity position, without resorting to major policy instruments such as changes in CRR and Bank Rate. However, markets are bound to react to frequent changes in the Repo Rates and this will be reflected in corresponding changes in the deposit and lending rates of commercial banks.
• At present the Reverse Repo Rate is 5.75%

• It is the interest rate charged by banks to their most creditworthy customers (usually the most prominent and stable business customers).
• The rate is almost always the same amongst major banks.
• Some banks use the name “Reference Rate” or “Base Lending Rate” to refer to their Prime Lending Rate.

• Rates at which the Scheduled banks can borrow funds overnight from RBI against government securities.
• It is a short term borrowing scheme for scheduled commercial banks in case the banks are in severe cash shortage or acute shortage of liquidity.
• MSF has been introduced by RBI to reduce volatility in the overnight lending rates in the inter-bank market and to enable smooth monetary transmission in the financial system.
• At present the MSF rate is 6.75%.

• It is an artificial currency created by the IMF in 1969. SDRs are allocated to member countries and can be fully converted into international currencies so they serve as a supplement to the official foreign reserves of member countries.
• Its value is based on a basket of key international currencies (U.S. dollar, euro, yen and pound sterling).

• It is a company registered under the Companies Act, 1956 and is engaged in the business of loans and advances; acquisition of shares/stock/bonds/debentures/securities issued by government, but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property.

NBFCs are doing functions akin to that of banks; however there are a few differences:
• A NBFC cannot accept demand deposits (demand deposits are funds deposited at a depository institution that are payable on demand — immediately or within a very short period — like current or savings accounts).
• It is not a part of the payment and settlement system and as such cannot issue cheques to its customers.
• Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation (DICGC) is not available for NBFC depositors unlike in case of banks.

• Concepts of White label ATMs is adopted from Canada. Since 2006, some banks have been pressing with RBI to introduce white label ATMs in India too.
• White Label ATM or White Label Automated Teller Machines in India will be owned and operated by Non-Bank entities.
• From such White Label ATM customer from any bank will be able to withdraw money, but will need to pay a fee for the services. These white label automated teller machines (ATMs) will not display logo of any particular bank and are likely to be located in non-traditional places.
• The white label automated teller machines are likely to benefit customers as well as banks. With the expansion of ATM network, customers will be able to withdraw funds at more locations, located near their home or place of work.

• After the subprime crisis of the US, the term Shadow Banks came into use in 2007.
• Shadow Banks refer to those organizations that function like banks but are outside the banking regulation.
• They help in providing quick source of credit to the public but have been criticized because they lead to a creation of a bubble and on the defaulting on loans by the borrowers it leads to a crisis at one witnessed in the US.
• Economists express concern over the functioning of shadow banks for several reasons. Shadow banks don’t enjoy powers under SARFAESI Act and therefore it is difficult for them to recover money in case of loan defaults. There are also concerns over their transparency and methods of functioning.

• Bharatiya Mahila Bank Ltd. is the first of its kind in the Banking Industry in India.
• One of the key objectives of the bank is to focus on the banking needs of women and promote economic empowerment.
• It is being looked upon as the beginning of a unique new institution that will provide financial services predominantly to women and women self-help groups to the small businesswomen and from the working women to the high net worth individual.
• It has been merged with SBI.

Some salient features of the bank are:
• Bank will offer 4.5% interest on saving deposits.
• It will not insist on collateral since most title deeds are in name of male family members.
• It will lend to micro businesses like catering, crèches & for upgrading kitchens in households.
• The bank aims to have Rs. 60,000 crore business and 775 branches by 2020.
• It will provide loans primarily to women, and will give low-cost education loans for girls.
• Key positions, including treasury head and security head, held by women.

• Banking Ombudsman is a quasi-judicial authority functioning under India’s Banking Ombudsman Scheme 2006, and the authority was created pursuant to a decision by the Government of India to enable resolution of complaints of customers of banks relating to certain services rendered by the banks.
• The Reserve Bank of India in 2006 announced the revised Banking Ombudsman Scheme with enlarged scope to include customer complaints on certain new areas, such as, credit card complaints, deficiencies in providing the promised services even by banks’ sales agents, levying service charges without prior notice to the customer and non-adherence to the fair practices code as adopted by individual banks.
• Applicable to all commercial banks, regional rural banks and scheduled primary cooperative banks having business in India, the revised scheme came into effect from January 1, 2006.

• Introduced by Dr. K S KrishnaswamyCommitteein 1972, aimed to provide institutional credit to those sectors and segments for whom it is difficult to get credit.
• According to this, SCB have to give 40% of loans (measured in terms of Adjusted Net Bank Credit or ANBC) to the identified priority sectors in accordance with the RBI Regulations.

Objective of Priority Sector Targets
• The overall objective of priority sector lending programme is to ensure that adequate institutional credit flows into some of the vulnerable sectors of the economy, which may not be attractive for the banks from the point of view of profitability.
• If these targets are not realized, banks have to finance the development programme implemented by the government for the concerned sectors.

New PSL Norms:
New PSL rules have been laid down by the RBI following the recommendations of internal working group in 2015.

Categories under PSL
Agriculture 18%: Within the 18 percent target for agriculture, a target of 8 percent of ANBC is prescribed for Small and Marginal Farmers.
Micro, Small and Medium Enterprises 7.5 percent.
Export Credit: Incremental export credit up to 2 percent for domestic banks and foreign banks with 20 branches and above.
Education: Loans to individuals for educational purposes including vocational courses upto Rs  10 lakh.
Housing: Loans to individuals up to Rs 28 lakh in metropolitan centres (with population of ten lakh and above) and loans up to Rs 20 lakh in other centres for purchase/construction of a dwelling unit per family.
Social Infrastructure: Bank loans up to a limit of Rs 5 crore per borrower for building social infrastructure for activities namely schools, health care facilities, drinking water facilities and sanitation facilities in Tier II to Tier VI centres.
Renewable Energy: Bank loans up to a limit of Rs 15 crore to borrowers (individual households- Rs 10 lakh) including for public utilities viz. street lighting systems, and remote village electrification.
Others: SHG, JLG etc.

The new regulation also stipulates that banks should give 10% of their loans to the
• Weaker sections which include Small Marginal Farmers, Artisans, village and cottage industries with a credit limit uptoRs 1 lakh
• Beneficiary of certain govt. sponsored schemes,
• SCs/STs,
• SHGs,
• Person with disabilities etc.
Foreign Banks with 20 branches and above already have priority sector targets of 40% and sub-targets for Agriculture and Weaker Sections. These targets are to be achieved by March 31, 2018 as per the action plans approved by RBI.
Foreign banks with less than 20 branches will move to total Priority Sector target of 40 percent by 2019-20. The sub-target for MSME sector will be made in 2018.

An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank and is overdue for a period of 90 days.Banks are required to classify NPAs further into

Substandard, Doubtful and Loss Assets.
Substandard assets: Assets which has remained NPA for a period less than or equal to 12 months.
Doubtful assets: An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.
Loss assets: As per RBI, “Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.”

Status of NPAs in India
Banks have been asked by the RBI to clean up their account statement and their asset book by March 2017 following the huge NPAs pending with these banks.
Resultantly this led to 29 public sector banks writing off Rs1.14 Lakh Crore of bad debts between 2013 -2015, much more than what they had done in the preceding 9 years.
• The gross bad loans of 39 listed Indian banks, in absolute term, rose 92% in fiscal year 2016 to Rs.5.79 trillion even as after provisioning, the net bad loans more than doubled to Rs.3.38 trillion.
• In percentage terms, the average gross non-performing assets (NPAs) of this group of banks rose from 4.41% of loans in 2015 to 7.91% in 2016; net NPAs in the past one year rose from 2.45% to 4.63%.
• Public sector banks, which have close to 70% market share of loans, are more affected than their private sector peers. Two of them have over 15% gross NPAs and an additional eight close to 10% and more.

Impact of NPAs on Banks:
• Rising of NPAs will lead to a crisis of confidence in the market.
• The price of loans, i.e. the interest rates will shoot up.
• Shooting of interest rates will directly impact the investors who wish to take loans for setting up infrastructural, industrial projects etc.
• It will also impact the retail consumers like us, who will have to shell out a higher interest rate for a loan.
• This will hurt the overall demand in the Indian economy which will lead to lower growth rates and of course higher inflation because of the higher cost of capital.
• The trend may continue in a vicious circle and deepen the crisis.

Laws related to NPAs and Bankruptcy
SARFAESI Act – It empowers Banks/Financial Institutions to recover their NPAs without the intervention of the court, through acquiring and disposing secured assets in case of outstanding amounts greater than 1 lakh. SARFAESI has been used only against the small borrowers primarily from MSME sectors.
Recovery of Debts Due to Banks and Financial Institutions (DRT) Act: The Act provides setting up of Debt Recovery Tribunals (DRTs) and Debt Recovery Appellate Tribunals (DRATs) for expeditious and exclusive disposal of suits filed by banks / FIs for recovery of their dues in NPA accounts with outstanding amount of Rs. 10 lac and above. DRTs are overburdened leading to slow disposal of cases.
Lok Adalats:  Section 89 of the Civil Procedure Code provides resolution of disputes through ADR methods such as Arbitration, Conciliation, Lok Adalats and Mediation. Lok Adalats mechanism offers expeditious, in-expensive and mutually acceptable way of settlement of dispute.
• Under banking regulation act 1949, RBI is empowered to monitor the asset quality of banks by inspecting record books.

• Implementing the Narsimham Committee recommendations, RBI prescribed that banks should make 100 per cent provision for all loss assets or non-performing assets (NPAs) over a period of 2 years, as prudential norms.
• Capital Adequacy Norms required the banks to achieve a capital to risk weighted asset ratio of 8 per cent. A bank’s real capital is assessed after taking into account the riskiness of its assets. Providing a cushion for the riskiness of the asset is necessary to guarantee against insolvency.
• The international norm for Capital Adequacy Ratio was set by Basel Committee on Banking Supervision under the aegis of the Bank of International Settlements (BIS) Basle, Switzerland, after the failure of the German Bank Herstatt in 1974.
• It is a committee of Bank Supervisors consisting of members from each of the G10 countries. The committee is a forum for discussion of the handling of specific supervisory problems.
• It came up with the first set of recommendations which are called Basel I. These included a minimum capital adequacy of 8 per cent of the total risk weighted assets of a bank.
• Many Indian Banks had to go in for public issues to satisfy capital adequacy norms. It was later realized that Basel I norms addressed only financial risk.
• Accordingly, a revised set of norms called Basel II was brought out in June 2004. These are more complex norms and are based on the three pillars of Capital Requirement, Supervisory Review and Market Discipline.
• Despite Basel II norms, the financial market crisis of 2008 revealed the need for further stringency.
Basel III was proposed in Dec 2010 in order to improve the banking sector’s ability to absorb shocks arising from financial and economic stress.
• RBI has issued instructions for the adoption of Basel III norms from Jan 2013 in a phased manner to be completed by March 31, 2018.
• This will require fresh infusion of capital for which dilution of PSU bank capital has been decided without diluting govt. control.

Banking Sector Reforms

• In 1921, all presidency banks were amalgamated to form the Imperial Bank of India which was run by European Shareholders.
• After that the Reserve Bank of India was established in April 1935. At the time of first phase the growth of banking sector was very slow.
• Between 1913 and 1948 there were approximately 1100 small banks in India. To streamline the functioning and activities of commercial banks, the Government of India came up with the Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No.23 of 1965).
• Reserve Bank of India was vested with extensive powers for the supervision of banking in India as a Central Banking Authority.
• After Independence, in 1955, the Imperial Bank of India was nationalized (under State Bank of India Act – 1955) and was given the name “State Bank of India”, to act as the principal agent of RBI and to handle banking transactions all over the country.
• Seven banks forming subsidiary of State Bank of India was nationalized in 1960.
• On 19th July, 1969, major process of nationalization was carried out. At the same time 14 major Indian commercial banks of the country were nationalized.
• In 1980, another six banks were nationalized, and thus raising the number of nationalized banks to 20.
• Seven more banks were nationalized with deposits over 200 Crores. Till the year 1980 approximately 80% of the banking segment in India was under government’s ownership.
• On the suggestions of Narsimham Committee, the Banking Regulation Act was amended in 1993 and thus the gates for the new private sector banks were opened.

The following are the major steps taken by the Government of India to Regulate Banking institutions in the country:
• 1949: Enactment of Banking Regulation Act.
• 1955: Nationalisation of State Bank of India.
• 1959: Nationalisation of SBI subsidiaries.
• 1961: Insurance cover extended to deposits.
• 1969: Nationalisation of 14 major Banks.
• 1971: Creation of credit guarantee corporation.
• 1975: Creation of regional rural banks.
• 1980: Nationalisation of seven banks with deposits over 200 Crores.

• It was observed that certain sectors of the economy such as the agriculture, small-scale industries and weaker sections of the society were relatively ignored by the banking system of the country. For example, the agricultural sector only received 2.1% of the total credit as it stood in March 1967 compared to a humungous 64% for the industry.
• It was though by Government of India that it should impose some control over banks with a view to preventing monopolistic trends, concentration of economic power and misuse of economic resources.
• National Credit Control Council was set up on December 22, 1967 to assess periodically the available resources of credit and to ensure its equitable and purposeful distribution among the several sectors.
• Such a mechanism didn’t work out and eventually nationalization was brought about through promulgation of an ordinance in 1969, which nationalized 14 leading commercial bank of the country. Some of them were the Punjab National Bank, IOB, Dena Bank, Syndicate Bank etc. In 1980 six more banks were nationalized.

Objectives of Bank Nationalisation
• To mobilize savings of people to the maximum possible and to utilize them for productive purpose;
• To ensure that the banking operations are guided by a larger social purpose and are subject to close public regulations;
• To ensure that the legitimate credit needs of private sector industry and trade, big and small, are met;
• To ensure the needs of the productive sector and in particular, agriculture, small scale industry, self-employed professionals are met;
• To actively foster the growth of the new and progressive class of entrepreneurs and create fresh opportunities for hitherto neglected and backward areas in different parts of the country;
• To curb the use of bank credit for speculative and for other unproductive purposes.

• One of the sectors that has been subjected to reform as a part of the new economic policy since 1991 consistently is the banking sector.
Commercial Banks and their weaknesses by 1991: The major factors that contributed to deteriorating bank performance upto the ends of eighties were:
• High SLR and CRR locking up funds
• Low interest rates charged on government bonds
• Directed and concessional lending for populist reasons
• Administered interest rates
• Lack of competition

Thus, the reforms were needed to set the above problems right such as:
• Floor and cap on SLR and CRR removed in 2006.
• Interest rates were deregulated to make banks respond dynamically to the market conditions. Even Scheduled Banks rates were deregulated in 2011.
• Near level playing field for public, private and foreign banks in entry
• Adoption of prudential norms – Reserve Bank of India issued guidelines for income recognition, asset classification and provisioning to make banks safer
• Basel Norms adopted for safe banking
• VRS for better work culture and productivity
• FDI up to 74% is permitted in private banks

The objectives of Banking Sector Reforms have been
• To make them competitive and profitable
• To strengthen the sector to face global challenges
• To make banking Sound and safe
• To help them technologically modernize for customer benefit
• To make available global expertise and capital by relaxing FDI norms


Banking Sector reforms in India were conducted on the basis of Narasimham Committee reports I and II (1991 and 1998 respectively). This committee was appointed against the backdrop of the Balance of Payment Crisis. It was set up to analyze all factors related to financial system and give recommendation to improve its efficiency and productivity.
In 1991, the Narasimhan Committee recommended for:
• Creating a level playing field between the public sector, private sector and foreign sector banks
• Selection of few banks like SBI for global operations
• Reducing Statutory Liquidity Ratio (SLR) as that will leave more resources with banks for lending
• Reducing Cash Reserve Ratio (CRR) to increase lendable resource of banks
• Rationalizing and better targeting priority sector lending as a sizeable portion of it is wasted and also much of it turning into non-performing asset
• Introducing prudential norms for better risk management and transparency in operations
• Deregulating interest rates
• Set up Asset Reconstruction Company (ARC) that can take over some of the bad debts of the banks and financial institutions and collect them for a commission.
Again in 1998, Finance Ministry of the GoI appointed a committee under the chairmanship of Mr. M Narasimham to review the progress of the implementation of the banking reforms since 1992 and further strengthening the financial institutions of India.
In 1998, the committee recommended for:
• Need for stronger banking system by merging some banks which will have a multiplier effect on industry.
• Stricter norms for NPAs and the concept of narrow banking which allows the banks to place their funds only in short term and risk free assets.
• Greater autonomy for the PSBs in order to make them function in accordance with their international counterparts.
• Government of India equity in nationalized banks be reduced to 33% for increased autonomy
• Review of functions of banks boards with a view to make them responsible for enhancing shareholder value through formulation of corporate strategy and reduction of government equity.
• Increasing Capital Adequacy norms to improve the risk absorption capacity of banks.
• The committee targeted raising the capital adequacy ratio to 9% by 2000 and 10% by 2002. The Committee recommended penal provisions for banks that fail to meet these requirements.

Implementations of Recommendations:
• In order to implement these (Narsimham Committee II) recommendations, The RBI in Oct 1998, initiated the second phase of Financial Sector Reforms raising capital adequacy ratio by 1% and tightened the prudential norms for provisioning and asset classification in a phased manner.
• It also targeted to bring the capital adequacy ratio to 9% by March 2001.
• In October 1999 criteria for “autonomous status” was identified by March 1999 and 17 banks were considered eligible for autonomy.
• Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARAFESI Act 2002) was introduced to curb NPAs like problems.
• During the 2008 economic crisis, performance of Indian banking sector was far better than their international counterparts.
• This was credited to the successful implementation of the recommendations of the Narasimham Committee-II with particular reference to the capital adequacy norms and the recapitalization of the public sector banks.
• Impact of the two committees has been so significant that the financial-economic sector professionals have been applauding there positive contribution.

The Reserve Bank of India (RBI) granted two preliminary licences to set up new banks in a country where only one household in two has access to formal banking services.
The approval of licences for IDFC Ltd (IDFC.NS) and Bandhan Financial Services marks the start of a cautious experiment for a sector dominated by lethargic state lenders, many of which are reluctant to expand into rural areas or towns where banking penetration is low. No new Indian bank has been formed since Yes Bank (YESB.NS) in 2004.
RBI has come up with guidelines for issuing new bank license.

Key features of the guidelines are:
(i) Eligible Promoters: Entities / groups in the private sector, entities in public sector and Non-Banking Financial Companies (NBFCs) shall be eligible to set up a bank through a wholly-owned Non-Operative Financial Holding Company (NOFHC).

(ii) ‘Fit and Proper’ criteria: Entities / groups should have a past record of sound credentials and integrity, be financially sound with a successful track record of 10 years. For this purpose, RBI may seek feedback from other regulators and enforcement and investigative agencies.

(iii) Corporate structure of the NOFHC: The NOFHC shall be wholly owned by the Promoter / Promoter Group. The NOFHC shall hold the bank as well as all the other financial services entities of the group.

(iv) Minimum voting equity capital requirements for banks and shareholding by NOFHC: The initial minimum paid-up voting equity capital for a bank shall be ‘5 billion. The NOFHC shall initially hold a minimum of 40 per cent of the paid-up voting equity capital of the bank which shall be locked in for a period of five years and which shall be brought down to 15 per cent within 12 years. The bank shall get its shares listed on the stock exchanges within three years of the commencement of business by the bank.

(v) Regulatory framework: The bank will be governed by the provisions of the relevant Acts, relevant Statutes and the Directives, Prudential regulations and other Guidelines/Instructions issued by RBI and other regulators. The NOFHC shall be registered as a non-banking finance company (NBFC) with the RBI and will be governed by a separate set of directions issued by RBI.

(vi) Foreign shareholding in the bank: The aggregate non-resident shareholding in the new bank shall not exceed 49% for the first 5 years after which it will be as per the extant policy.

(vii) Corporate governance of NOFHC: At least 50% of the Directors of the NOFHC should be independent directors. The corporate structure should not impede effective supervision of the bank and the NOFHC on a consolidated basis by RBI.

(viii) Prudential norms for the NOFHC: The prudential norms will be applied to NOFHC both on stand-alone as well as on a consolidated basis and the norms would be on similar lines as that of the bank.

(ix) Exposure norms: The NOFHC and the bank shall not have any exposure to the Promoter Group. The bank shall not invest in the equity / debt capital instruments of any financial entities held by the NOFHC.

(x) Business Plan for the bank: The business plan should be realistic and viable and should address how the bank proposes to achieve financial inclusion.

(xi) Other conditions for the bank:

– The Board of the bank should have a majority of independent Directors.
– The bank shall open at least 25 per cent of its branches in unbanked rural centres (population upto 9,999 as per the latest census)
– The bank shall comply with the priority sector lending targets and sub-targets as applicable to the existing domestic banks.
– Banks promoted by groups having 40 per cent or more assets/income from non-financial business will require RBI’s prior approval for raising paid-up voting equity capital beyond ‘10 billion for every block of ‘5 billion.
– Any non-compliance of terms and conditions will attract penal measures including cancellation of licence of the bank.

(xii) Additional conditions for NBFCs promoting / converting into a bank: Existing NBFCs, if considered eligible, may be permitted to promote a new bank or convert themselves into banks.

A. Nachiket Mor Committee
The “Committee on Comprehensive Financial Services for Small Businesses and Low Income Households” was set up by the RBI under the chairmanship of Nachiket Mor.
In its final report, the Committee has outlined six vision statements for full financial inclusion and financial deepening in India:
1. Universal Electronic Bank Account (UEBA): Each Indian resident, above the age of eighteen years, would have an individual, full-service, safe, and secure electronic bank account.
2. Ubiquitous Access to Payment Services and Deposit Products at Reasonable Charges: The Committee envisions that every resident in India would be within a fifteen minute walking distance of a payment access point.
3. Sufficient Access to Affordable Formal Credit: Each low-income household and small-business would have access to a formally regulated lender that is capable of assessing and meeting their credit needs. Such a lender must also be able to offer them a full-range of suitable credit products at an affordable price.
4. Universal Access to a Range of Deposit and Investment Products at Reasonable Charges: Each low-income household and small-business would have access to providers that can offer them suitable investment and deposit products. Such services must be available to them at reasonable charges.
5. Universal Access to a Range of Insurance and Risk Management Products at Reasonable Charges: Each low-income household and small business would have access to providers that have the ability to offer them suitable insurance and risk management products. These products must at minimum allow them to manage risks related to: (a) commodity price movements; (b) longevity, disability, and death of human beings; (c) death of livestock; (d) rainfall; and (e) damage to property.
6. Right to Suitability: Each low-income household and small-business would have a legally protected right to be offered only suitable financial services. She will have the right to seek legal redress if she feels that due process to establish Suitability was not followed or that there was gross negligence.

The key recommendations are:
• Providing a universal bank account to all Indians above the age of 18 years by January 1, 2016. To achieve this, a vertically differentiated banking system with payments banks for deposits and payments and wholesale banks for credit outreach. These banks need to have Rs.50 crore by way of capital, which is a tenth of what is applicable for new banks that are to be licensed.
• Aadhaar will be the prime driver towards rapid expansion in the number of bank accounts.
• Monitoring at the district level such as deposits and advances as a percentage of gross domestic product (GDP).
• Adjusted 50 per cent priority sector lending target with adjustments for sectors and regions based on difficulty in lending.

B. P. J. Nayak Committee
It was constituted by the RBI for making recommendations regarding corporate governance in PSU banks.
Recommendations of the Nayak Committee are:
• Scrapping and removal of Bank Nationalisation Acts, SBI Act and SBI(Subsidiary Banks) Act.
• Conversion of PSBs into Companies as per the Companies Act.
• Formation of a Bank Investment Company/BIC under the Companies Act; transfer of shares by the central government in PSBs to the BIC.
• BIC in turn would have over the controlling power to boards of PSBs.
• Government will only control earning return on investment.
• Fair return on investment to the Central government would be the responsibility of BIC.
• Appointments of CEOs, Inside Directors and top Executives of PSBs would be the responsibility of the Bank Boards Bureau constituting three serving or retired bank chairmans and the government would not be involved in this decision in any way.
• Nayak committee also recommends proportionate voting rights to all shareholders and reduction of governmental shareholding to 40%.