M Narasimham, who passed away Tuesday, was father of banking reforms

Former Reserve Bank of India (RBI) Governor M Narasimham passed away Tuesday. Considered as the father of banking reforms, Narasimham, who was battling a Covid-19 related illness, breathed his last in a Hyderabad hospital on Tuesday. He was 94.

He headed two committees in 1991 and 1998 that had critical influence on the country’s banking reforms and set the agenda for the sector. The expert committee headed by Narasimham gave a series of recommendations in November 1991. During the next five years, 1992-97, there was a paradigm shift in the financial sector with the opening up of the economy. In 1998, the second Narasimham committee made further recommendations with a view to consolidating the gains already made during the early years of reforms. The financial sector had a clear road map for change.

The Narasimham Committee-II had suggested that financial institutions like IDBI and ICICI should either convert themselves into banks or non-banking financial companies (NBFCs). The committee was tasked with the progress review of the implementation of the banking reforms since 1992 with the aim of further strengthening the financial institutions of India. It focused on issues like size of banks and capital adequacy ratios among other things. He proposed a three-tier banking structure in India through establishment of three large banks with international presence, eight to ten national banks and a large number of regional and local banks.

In 1992, the government and the RBI started work on reforms based on the Narasimham panel report, aimed at strengthening Indian banks. The committee said the door should not be shut on new private banks as long as they met RBI norms. That hadn’t been thought of for decades — as governments sought to exercise social control over banks, leading to nationalisation in 1969 and 1980, and also because of controversies over the functioning of banks controlled by industrial groups.

He was the first and only governor to be appointed from the Reserve Bank cadre. He served as the 13th RBI Governor for seven months between May and November 1977 prior to the joining of IG Patel as the Governor.

Narasimham joined the RBI as a Research Officer in the Economic Department. He later joined the government and served as Additional Secretary in the Department of Economic Affairs. He later became Secretary in the Finance Ministry. After his stint at the RBI, Narasimham joined the International Monetary Fund where he served as Executive Director and later at the World Bank.