Q. With reference to the recommendations of the Narasimham Committee-I (1991) on Financial Sector Reforms, consider the following statements:
1.It recommended the phasing out of Directed Credit Programmes (like fixing concessional interest rates) and relying more on market forces for interest rate determination.
2.It proposed that the Statutory Liquidity Ratio (SLR) should be drastically reduced from 38.5% to 25% to enhance the profitability of commercial banks.
3.It advocated for a reduction in the aggregate credit to the Priority Sector to 10% from the existing levels, focusing only on small and marginal farmers and the weaker sections.
Which of the statements given above are correct?
Answer: D
Notes:
Explanation:
Statement 1: Correct. A key reform was to deregulate interest rates and phase out directed credit, replacing it with a selective approach.
Statement 2: Correct. The Committee found the high SLR (38.5%) to be a tax on the banking system, reducing profitability, and recommended a gradual reduction to 25%.
Statement 3: Correct. The Committee recommended a redefinition of the priority sector, advocating that the aggregate credit should be reduced to 10% and focus only on a few select sub-sectors like small and marginal farmers, and the weaker sections, allowing banks greater freedom.
