Monetary reforms aimed at doing away with interest rate distortions and rationalizing the structure of lending rates. The new policy tried in many ways to make the banking system more efficient.
Some of the measures undertaken were:
(I) Reserve Requirements:
- Reduction in Statutory liquidity ratio [SLR] and the cash reserve ratio [CRR] were the recommendations by the Narasimham Committee Report, 1991.
- It was proposed to cut down the SLR from 38.5 percent to 25 percent within a time span of three years.
(II) Interest Rate Liberalisation: RBI controlled:
- The interest rates payable on deposits. The interest rate which could be charged for bank loans.
- Greater competition among public sector, private sector and foreign banks and elimination of administrative constraints.
- Liberalisation of bank branch licensing policy in order to rationalize the existing branch network.
- Banks were given freedom to relocate branches and open specialized branches
- Guidelines for opening new private sector bankNew accounting norms regarding classification of. assets and provisions of bad debt were introduced in tune with the Narasimham Committee Report.
