The deregulation of interest rates of banks is based on the recommendation of ……….

Explanation

The Narasimhan Committee (1991) identified the decline in interest income as a major reason for the falling profitability of public sector banks in India. The reduction in interest income was mainly because a large part of total deposits had to be maintained at relatively low interest rates in the form of the Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR). In addition, under social banking, a large share of deposits (about 40% of total deposits) had to be lent to the priority sector at low interest rates. Only about 30% of total deposits could be lent at market interest rates. In this context, the Narasimhan Committee recommended reducing SLR to 25% and bringing down CRR to around the 3% to 5% level. It also recommended giving banks the freedom to fix the minimum lending rate. The Government accepted the above recommendations of the Committee. ## Page 13