| The process of financial sector reform was initiated in 1992 following
the report of the Committee on the Financial Systems (CFS), whose
recommendations were framed with the object of consolidating the
quantitative progress achieved in our financial system in the preceding
quarter century even while arresting the qualitative deterioration of
services that had accompanied quantitative growth. The implementation of
the recommendations pertaining to accounting, asset classification and
income recognition has certainly helped to make the accounts of our
banks more transparent and credible. Capital adequacy norms were also
prescribed and most banks have now reached the set levels. However, the
equally and perhaps more important recommendations relating to systemic
and structural aspects are yet to be properly addressed. At this stage,
it is more important to take stock of the present situation and move
ahead, which is what the second committee on banking sector reform,
which reported in April 1998, sought to do. The second phase of
financial sector reform has to be set against broader macroeconomic
changes. This paper highlights the implications of finance sector reform
measures for banking sector. |