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Maidavolu Narasimham: Father of banking reforms is no more

Maidavolu Narasimham, former governor of the Reserve Bank of India and the architect of banking sector reforms, died on Tuesday. He was 94.

Narasimham joined the RBI as a research officer and then went on to serve the Indian government. He was an additional secretary at the Department of Economic Affairs, and was also in the Finance Ministry prior to economic liberalisation in the 90s.

He was the thirteenth governor of the Reserve

where he stayed for just about seven months in 1977. He later served as executive director at the World Bank, and also at the International Monetary Fund.

His contribution to Indian banking was probably more after his retirement than as the chief of the central bank as he headed two committees on banking sector reforms which became the signpost for both the central bank and the government in the next three decades.

At the cusp of India’s economic liberalisation in 1991, the then finance minister Manmohan Singh made him head the committee on the financial system (The first Narasimham Committee), which created a stir by suggesting consolidation in banking for the first time. Within half-a-decade, he was again called upon to spearhead another committee on banking sector reforms.

When the then Finance Minister Yashwant Sinha was about to declare the government’s intention to bring down the state’s stake in banks to 26 percent, the then deputy governor Y.V. Reddy prevailed upon him to make it 33 percent as that was the consensus arrived at by the Narasimham committee.

“He was diminutive man, but he could handle two or three cocktail parties followed by dinner and a nightcap, with just the two of us meeting over a bottle of wine after midnight,’’ Y.V. Reddy, a former Governor at RBI writes about Narasimham in his memoirs. “By the next morning, he walked into the office, fresh as a daisy.’’

As an executive director at the World Bank he was caught between the Indian government and the institution when a government change in 1980 led to the replacement of a consultant to a fertilizer factory. The Bank was supposed to lend $250 million subject to retaining the consultant. Subsequently, the Bank cancelled the loan.

Narasimham was not only a guidepost for banking sector reforms, he was the prime mover behind the setting up of the Regional Rural Bank to facilitate flow of credit to farmers and in villages. He was of the belief that commercial banks were not suited to lend to the poorer communities.

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