High Level Committee Report on Financial System (CFS)

It was setup on 14 August, 1991 to examine all aspects relating to structure, organisation, function and procedures of the financial system. It was chaired by N. Narasimham.

Key Recommendations: It advised the RBI not to use the CRR as a principal instrument of monetary and credit control and should increasingly use open market operations (OMOs).

• Compulsion of priority sector lending (PSL) by the banks. The PSL target should be fixed at 10 per cent of the aggregate bank credit. The composition of the PSL should be reviewed after every 3 years.
• Substantial reduction in the number of the PSBs through mergers and acquisitions for bringing about greater efficiency in banking operations.
• The appointment of the Chief Executive of Bank (CMD) was suggested not to be on political considerations but on professionalism and integrity.
• It suggested setting up of Asset Reconstruction Company to tackle the menace of the higher non-performing assets (NPAs) of banks and financial institutions.