flowchart TB
R[Reforms 1991+] --> N1[Narasimham I & II<br/>CRAR, NPAs, mergers]
R --> L[Liberalisation<br/>private/foreign banks]
R --> M[Modernisation<br/>SARFAESI, IBC, NaBFID]
R --> FI[Financial Inclusion<br/>PMJDY · JAM · UPI · MUDRA]
classDef default fill:#003366,color:#ffffff,stroke:#ffcc00,stroke-width:3px,rx:10px,ry:10px;
67 Financial sector reforms including financial inclusion
67.1 Concept and Trigger of Reforms
Financial sector reforms are “systemic changes in the rules, ownership, and instruments of the financial system aimed at improving efficiency, soundness, depth, and inclusion”. India’s reforms began in 1991 after the BoP crisis and were guided by the Narasimham Committee I (1991) and II (1998). The companion idea is financial inclusion: ensuring affordable access to a basic bouquet of financial services — savings, credit, insurance, payments, and pensions — for every adult and small business.
67.2 Narasimham Committee I (1991)
Key recommendations: CRAR 8 % (later 9 %); income-recognition norms (90-day NPA — later); 4-tier banking structure (3-4 large international banks, 8-10 national banks, regional banks, rural banks); reduction of SLR to 25 % and CRR to 10 %; deregulation of interest rates; opening to private and foreign banks; corporatisation of PSBs; phasing out of priority-sector lending (modified later).
67.3 Narasimham Committee II (1998)
Focused on banking-sector strengthening: merger of strong banks to create global-size banks; CRAR 10 % target; tightening of NPA norms; introduction of ALM; rapid disposal of cases through DRTs; computerisation of PSBs; creation of an Asset Reconstruction Company (later IDBI’s first ARC, ARCIL).
67.4 Other Key Reform Committees
TipReform Committees Snapshot
- Chakravarty Committee (1985) — review of monetary system.
- Khan Working Group (1998) — universal banking.
- Verma Committee (1999) — weak banks.
- Tarapore I (1997) & II (2006) — Capital Account Convertibility.
- Mistry Committee (2007) — Mumbai as international financial centre.
- Raghuram Rajan Committee (2008) — ‘100 small steps’ for financial-sector reform (laid the basis for FSDC, IFSCA).
- Nachiket Mor Committee (2014) — universal access to financial services; led to Payments Banks & SFBs.
- Bimal Jalan Committee (2019) — RBI’s economic capital framework.
- K. V. Kamath Committee (2020) — COVID one-time restructuring of loans.
67.5 Banking-Sector Reform Milestones
TipReform Timeline
- 1991-93 — Narasimham I implementation: SLR / CRR reduced; rates deregulated; PSB recapitalisation.
- 1993 — Private banks allowed; RDB Act → DRTs.
- 1994-95 — UTI Bank (now Axis), HDFC Bank, ICICI Bank, IndusInd licensed.
- 2001 — Voluntary Retirement Scheme; bank deregulation deepened.
- 2002 — SARFAESI Act (NPA recovery without court).
- 2003 — Repo / Reverse repo formalised; LAF.
- 2006 — Business Correspondent / BC-BF model.
- 2008-10 — Crisis-period recap; consolidation of associate banks of SBI.
- 2014 — JAM trinity launched.
- 2014-16 — Bharatiya Mahila Bank merger; IDFC & Bandhan get bank licence.
- 2015 — Payments Banks & Small Finance Banks licences.
- 2016 — IBC 2016; demonetisation.
- 2017 — GST; MCLR; Insolvency.
- 2019 — Mega merger of 10 PSBs into 4.
- 2021 — NaBFID Act; NARCL Bad Bank.
- 2024-25 — RBI launches CBDC pilot (e₹).
67.6 Financial Inclusion — Concept
Financial Inclusion (FI) is the delivery of financial services at an affordable cost to the vast sections of the disadvantaged and low-income groups (Rangarajan Committee 2008). RBI’s Financial Inclusion Index (FI-Index) has three dimensions: Access, Usage, Quality with FI-Index value of around 64 (2024).
67.6.1 Dimensions of Financial Inclusion
TipThree Dimensions of FI
- Access — bank/branch density, ATMs, mobile banking, BCs.
- Usage — savings, credit, remittances, insurance, pension uptake.
- Quality — financial literacy, redressal, suitability of products.
67.7 Key Indian FI Initiatives
67.7.1 PMJDY — Pradhan Mantri Jan Dhan Yojana (2014)
Launched 28 August 2014. Aim: a no-frills bank account for every household. Features: zero-balance, RuPay card, accidental insurance ₹2 lakh (post 2018: ₹2 lakh), overdraft up to ₹10,000, basic insurance/pension link. Crossed 50 crore accounts by 2024.
67.7.2 Atal Pension Yojana (APY 2015)
Pension ₹1,000-5,000 monthly for unorganised workers; 18-40 yrs entry; government co-contribution earlier.
67.7.3 Pradhan Mantri Suraksha Bima Yojana (PMSBY 2015)
Accident insurance — ₹2 lakh for ₹20/yr (revised).
67.7.4 Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY 2015)
Term-life insurance — ₹2 lakh for ₹436/yr (revised).
67.7.5 MUDRA Yojana (2015)
Micro-credit refinance — Shishu (up to ₹50,000), Kishor (up to ₹5 lakh), Tarun (up to ₹10 lakh, raised to ₹20 lakh in 2024).
67.7.6 Stand-Up India (2016)
Loans ₹10 lakh to ₹1 crore for SC/ST/Women entrepreneurs.
67.7.7 Sukanya Samriddhi Yojana (2015)
Savings scheme for girl child.
67.7.8 PM Vishwakarma (2023)
Loans, skill training, toolkits for traditional artisans/craftspersons.
67.7.9 Digital Initiatives Supporting FI
TipDigital FI Stack
- Aadhaar (2009) — biometric identity, basis of eKYC.
- JAM trinity — Jan Dhan + Aadhaar + Mobile.
- DBT — direct benefit transfer (since 2013).
- UPI (2016) — Unified Payments Interface by NPCI.
- BHIM (2016) — Bharat Interface for Money.
- Aadhaar Enabled Payment System (AEPS).
- Account Aggregator (AA) framework — 2021.
- Open Network for Digital Commerce (ONDC) — 2022.
67.7.10 Differentiated Banks for Inclusion
- Payments Banks — Airtel PB, Paytm PB, India Post PB, Jio PB, NSDL PB, Fino PB.
- Small Finance Banks — AU SFB, Equitas SFB, Ujjivan SFB, Capital SFB, ESAF SFB, Suryoday SFB, Utkarsh SFB, Jana SFB, Fincare SFB, North-East SFB, Shivalik SFB, Unity SFB.
- RRBs — 43 (post-amalgamation phases I, II, III, IV).
- Local Area Banks — limited to 3-4 contiguous districts.
- Business Correspondents — branchless banking at last mile.
NoteDistractor warning
PYQ trap: Narasimham I — 1991 (BoP crisis); Narasimham II — 1998. PMJDY — 28 August 2014. Nachiket Mor 2014 → Payments Banks & SFBs 2015. RBI’s FI-Index has 3 dimensions (Access/Usage/Quality).
67.8 Practice Questions
Q 01Nara IEasy
Narasimham Committee I submitted its report in:
View solution
Correct Option: B
**1991** — set up Aug 1991, report Nov 1991.
Q 02CRARMedium
Narasimham I recommended initial CRAR of:
View solution
Correct Option: C
**8 %** initially (later 9 % in India, Basel III added buffers).
Q 03PMJDYEasy
PMJDY was launched on:
View solution
Correct Option: B
**28 August 2014** — by PM Modi.
Q 04MorMedium
Differentiated banks (PB & SFB) emerged from:
View solution
Correct Option: B
**Mor Committee 2014** → PBs & SFBs licensed 2015.
Q 05JAMEasy
JAM trinity stands for:
View solution
Correct Option: A
**Jan Dhan + Aadhaar + Mobile** = backbone of DBT.
Q 06MUDRAMedium
MUDRA-Tarun category lends up to (post 2024):
View solution
Correct Option: D
**Tarun** raised to **₹20 lakh** (2024 Union Budget); Shishu ₹50k, Kishor ₹5 lakh.
Q 07PMJJBYMedium
PMJJBY provides life cover of:
View solution
Correct Option: C
**₹2 lakh** for ₹436 annual premium (revised).
Q 08SARFAESIMedium
SARFAESI Act was passed in:
View solution
Correct Option: B
**SARFAESI 2002**.
Q 09FI-IndexHard
RBI's Financial Inclusion Index has how many dimensions?
View solution
Correct Option: B
**3** — Access, Usage, Quality.
Q 10IBCMedium
Insolvency and Bankruptcy Code was enacted in:
View solution
Correct Option: D
**IBC 2016**.
Q 11Mega mergerHard
Mega PSB merger announced in 2019 reduced 10 PSBs into:
View solution
Correct Option: B
**10 PSBs merged into 4** anchor banks (PNB+OBC+UBI; Canara+Syndicate; IB+Allahabad; Union+Andhra+Corp).
Q 12UPIEasy
UPI was launched by NPCI in:
View solution
Correct Option: C
**UPI 2016** by NPCI.
Q 13TaraporeHard
Tarapore Committees were associated with:
View solution
Correct Option: A
**CAC** — Tarapore I (1997) & II (2006).
Q 14SUIMedium
Stand-Up India provides loans to SC/ST/Women entrepreneurs from:
View solution
Correct Option: C
**₹10 lakh to ₹1 crore** — Stand-Up India 2016.
Q 15PMSBYMedium
PMSBY is:
View solution
Correct Option: B
**PMSBY 2015 — Suraksha = Accident Insurance** ₹2 lakh.
Q 16AAHard
Account Aggregator (AA) framework went live in:
View solution
Correct Option: C
**AA went live Sept 2021** under RBI.
Q 17SLR cutHard
Statutory minimum SLR (after various amendments to BR Act):
View solution
Correct Option: C
No statutory floor since 2007 amendment; **RBI prescribed (current 18 %)**.
Q 18PBHard
Payments Bank's deposit limit per customer:
View solution
Correct Option: B
**₹2 lakh** (raised in 2021 from ₹1 lakh).
Q 19CBDCMedium
India's Central Bank Digital Currency (CBDC) is called:
View solution
Correct Option: A
**e₹ (Digital Rupee)** — RBI pilots since 2022 (Wholesale & Retail).
Q 20MatchMedium
Match scheme with year:
| Scheme | Year | ||
| (i) | PMJDY | (a) | 2015 |
| (ii) | APY | (b) | 2014 |
| (iii) | UPI | (c) | 2023 |
| (iv) | PM Vishwakarma | (d) | 2016 |
View solution
Correct Option: A
PMJDY 2014; APY 2015; UPI 2016; PM Vishwakarma 2023.
67.9 Quick Recall
ImportantQuick recall
- Trigger: 1991 BoP crisis → Narasimham Committees.
- Narasimham I (1991): CRAR 8 %, deregulate rates, 4-tier banks, private banks allowed.
- Narasimham II (1998): ALM, NPA norms, mergers, ARC.
- Reforms: 1993 DRTs, 2002 SARFAESI, 2014 JAM, 2016 IBC, 2019 PSB mega-merger, 2021 NaBFID & NARCL, 2022 e₹ pilot.
- Mor Committee 2014 → Payments Banks & SFBs (2015).
- FI = Access + Usage + Quality (RBI FI-Index).
- Schemes: PMJDY 28-Aug-2014; PMJJBY ₹2 L life; PMSBY ₹2 L accident; APY ₹1k-5k pension; MUDRA Shishu/Kishor/Tarun (₹20 L since 2024); Stand-Up India ₹10 L-₹1 cr; PM Vishwakarma 2023.
- Digital stack: Aadhaar, JAM, UPI 2016, BHIM, AEPS, AA 2021, ONDC 2022, e₹.
- Differentiated banks: 6 PBs (deposit cap ₹2 L); 12 SFBs (75 % PSL).