M Narasimham, father of banking reforms, dead

Former Reserve Bank of India (RBI) Governor Maidavolu Narasimham passed away in Hyderabad on Tuesday. He was 94.

The recommendations of the two committees he headed – Committee on the Financial System, 1991 and the Committee of Banking Sector Reforms, 1998 – formed the bedrock of reforms in the Indian financial and banking sectors.

When the Emergency ended in 1977 and the new Janata Government was installed, it appointed Narasimham as Governor from May 2, 1977, to November 30, 1977.

Narasimham was the first and so far the only Governor to be appointed from the Reserve Bank cadre, having joined the central bank as a Research Officer in the Economic Department.

He later joined the government, and prior to his appointment as Governor, served as Additional Secretary, Department of Economic Affairs.

After his stint at the RBI as Governor, he joined the International Monetary Fund as Executive Director (ED) and later at the World Bank as ED. He was Finance Secretary between 1982 and 83.

When banks brought to the notice of the Reserve Bank the adverse impact on their profitability on account of opening additional offices in backward areas, Narasimham, then Additional Secretary, Department of Economic Affairs (early 1970s), cautioned that excessive concern for profitability would defeat the social objectives that banks were required to subserve, and contended thatexpenditures could be cut down and the minimum lending rate could be increased beyond the then prevailing level (of 10 per cent), as per RBI history.

According to the history, when the Bank of England (BoE) executive (Deputy Governor) went so far as to indicate that the option of ordering the closure of the Central Bank of India’s branch was not ruled out. Narasimham then explained that the major banks in India, including Central Bank of India, had only recently been nationalised, and any such action by the Bank of England could have political repercussions at home and give a handle to those who were critics of bank nationalisation.

He requested the BoE to bear this in mind, emphasising that the Central Bank branch was a victim of a fraud. However, these arguments did not make much headway, as Narasimham noted.

“At that point, I (Narasimham) told him that we in the Reserve Bank had reasons to believe that a couple of British banks were also transgressing our exchange control regulations. But we had held our hand in view of the cordial relationship between the British and Indian banks and between the Bank of England and the Reserve Bank, and that we were expecting the Bank of England to bear the same sentiments,” as per RBI history.

The BoE Deputy Governor tried to get Narasimham to name the banks, which he refused to do on the ground of confidentiality of relationships.

Narasimham, as quoted by RBI history from his book, ‘From Reserve Bank to Finance Ministry and Beyond: Some Reminiscences’, disclosed that while this approach worked, the head of the Discount Department at the Bank of England did not conceal the feeling that what Narasimham said seemed to be close to a veiled threat.

Narasimham Committee's first report suggested setting up of special tribunals with special powers for adjudication of cases involving the dues of banks and financial institutions.

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