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M Narasimham, the only RBI governor from central bank’s cadre, dies due to COVID

Narasimham, who served as RBI governor only for seven months, died in Hyderabad this afternoon due to COVID.

April 20, 2021 / 07:13 PM IST
M Narasimham, former Governor of the Reserve Bank of India (RBI) has passed away.

M Narasimham, former Governor of the Reserve Bank of India (RBI) has passed away.

Former Reserve Bank of India (RBI) governor M Narasimham died on April 20 at a Hyderabad hospital due to COVID-related illness, said an RBI spokesperson. He was 94 years old.

Narasimham was the first and so far the only governor to be appointed from the Reserve Bank cadre. He had a short tenure of seven months between May and November, 1977. Narasimham joined the bank as a Research Officer in the Economic Department. He later joined the government and prior to his appointment as governor he served as Additional Secretary, Department of Economic Affairs.

Narasimham later served as executive director for India at the World Bank and thereafter at the IMF after which he served in the Ministry of Finance as Secretary. He also served as the chairperson of the Committee on the Financial System, 1991 and the Committee of Banking Sector Reforms, 1998.

Narasimham is considered as the father of Indian banking reforms. The two committees he headed (Naramsimham committees 1991, 1997) have had critical influence on India’s banking sector to lay the framework for modern banking industry. Some of the key recommendations of these committees include government reducing controlling stake in public sector banks to make these institutions more autonomous and reforming the role of the Reserve Bank in the financial system. Narasimham committee pointed out that the interference of government nominees and politicians on the board of PSUs curtails the operational freedom of PSU banks. Also, the committee argued in favour of letting PSU banks tap capital market.

The main recommendations of the first Narasimham committee include deregulation of interest rates, phased reduction in statutory liquidity ratio, setting up of an asset reconstruction fund to take over a portion of the loan portfolio of banks whose recovery has become difficult and abolition of branch licensing policy.

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Similarly, the second committee strongly argued in favour of a stronger asset recognition framework to deal with NPAs (non-performing assets). It was based on this committee’s recommendation that the RBI introduced the 90-day income recognition framework. Under this, any asset where repayment is pending for more than 90 days will be tagged as bad. The committee also recommended that banks should also pay greater attention to asset liability management to avoid mismatches and to cover, among others, liquidity and interest rate risks.

Further, the second Narasimham committee also stressed the need for creating an independent loan review mechanism especially for large borrowal accounts and systems to identify potential NPAs. “It would be desirable that banks evolve a filtering mechanism by stipulating in-house prudential limits beyond which exposures on single/group borrowers are taken keeping in view their risk profile as revealed through credit rating and other relevant factors,” the committee said.
Moneycontrol News
first published: Apr 20, 2021 04:50 pm

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