Banking Reforms and Key Acts

Bank nationalisation happened in two phases: 14 major banks nationalised on 19 July 1969 (under PM Indira Gandhi, banks with deposits above Rs 50 crore), and 6 more in 1980 (deposits above Rs 200 crore). Total = 20 banks. The Banking Regulation Act, 1949 governs banking operations and gives RBI supervisory powers. The Narasimham Committee (1991 & 1998) recommended major reforms including reduction in SLR/CRR, prudential norms, and asset classification. Memory aid: '1969 = 14 banks, 1980 = 6 banks'. Liberalisation in 1991 opened the sector to new private banks (HDFC, ICICI). The Banking Regulation Act applies to cooperative banks too after a 2020 amendment.

The SARFAESI Act, 2002 (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) empowers banks to recover Non-Performing Assets (NPAs) WITHOUT court intervention by seizing and selling the defaulter's secured assets. A loan becomes an NPA when interest/principal is overdue for more than 90 days. SARFAESI does not apply to agricultural land or loans below Rs 1 lakh. Related: DRT (Debt Recovery Tribunal) under the RDDBFI Act, 1993, and the Insolvency and Bankruptcy Code (IBC), 2016 for time-bound resolution (within 180+90 days). Memory aid: 'SARFAESI = Seize Assets, no court'. ARCs (Asset Reconstruction Companies) buy NPAs from banks.

BASEL norms are international banking standards issued by the Basel Committee on Banking Supervision (BCBS), headquartered in Basel, Switzerland. Basel I (1988) focused on credit risk and minimum capital. Basel II (2004) added operational/market risk and the '3 pillars'. Basel III (post-2008 crisis) strengthened capital, introduced liquidity ratios (LCR, NSFR) and leverage ratio. CRAR (Capital to Risk-weighted Assets Ratio) under Basel III is minimum 8% (RBI mandates 9% for Indian banks, plus a Capital Conservation Buffer of 2.5%, so effectively ~11.5%). Memory aid: 'Basel I-II-III = Capital, Risk, Liquidity'. The CAR formula: CAR = (Tier 1 + Tier 2 capital) / Risk-Weighted Assets x 100.

Cover the answer, recall, then check. 12 cards on India's banking reforms and legislation for IBPS Clerk.

Q1. When were banks nationalised in India?
A1. 14 major banks on 19 July 1969, and 6 more on 15 April 1980 (banks with deposits above a threshold).

Q2. Which Act is the master law regulating banking business in India?
A2. The Banking Regulation Act, 1949.

Q3. What did the Narasimham Committee I (1991) recommend?
A3. Reduction of SLR/CRR, deregulation of interest rates, prudential norms (income recognition, asset classification), and phasing out directed credit constraints.

Q4. What did Narasimham Committee II (1998) focus on?
A4. Banking-sector structure — stronger banks, higher capital adequacy, mergers, and reducing government stake.

Q5. Which Act governs cheques and promissory notes?
A5. The Negotiable Instruments Act, 1881.

Q6. What is the SARFAESI Act, 2002 used for?
A6. It lets banks/FIs recover secured NPAs by taking possession of and selling collateral WITHOUT court intervention.

Q7. What is the Insolvency and Bankruptcy Code (IBC), 2016?
A7. A unified law for time-bound resolution/insolvency of stressed companies; the NCLT is the adjudicating authority.

Q8. What are DRTs and under which Act?
A8. Debt Recovery Tribunals, set up under the RDDBFI Act, 1993, to speed up recovery of bank dues above ₹20 lakh.

Q9. What is a "Bad Bank" / NARCL?
A9. The National Asset Reconstruction Company Ltd — an ARC that buys and resolves banks' large bad loans.

Q10. What was the Basel III framework introduced for?
A10. Stronger global bank capital (CRAR), leverage and liquidity norms to withstand financial shocks.

Q11. What is the PJ Nayak Committee associated with?
A11. Review of governance of bank boards (2014).

Q12. What did the 1991 LPG reforms mean for banking?
A12. Liberalisation, Privatisation, Globalisation — entry of new private/foreign banks and market-driven interest rates.

Legislation and reform milestones are a favourite in IBPS Clerk GA because the answers are static and never change. Expect 2–3 questions on Acts, nationalisation dates or reform committees — easy marks if you memorise the timeline.

Why it matters

Every banking power the RBI and banks use — regulation, recovery, forex, insolvency — flows from a specific Act. Examiners love matching an Act to its year or purpose.

Must-know durable facts

Act / Reform	Year	Purpose
RBI Act	1934	Established the RBI
Banking Regulation Act	1949	Regulates banking business
Negotiable Instruments Act	1881	Cheques, bills, promissory notes
Bank Nationalisation (I & II)	1969, 1980	14 + 6 banks nationalised
RDDBFI Act (DRTs)	1993	Fast-track debt recovery
FEMA (replaced FERA)	1999	Forex management
SARFAESI Act	2002	Recover secured NPAs without court
IBC	2016	Time-bound insolvency resolution

The Narasimham Committee I (1991) launched prudential norms and rate deregulation; Narasimham II (1998) pushed stronger, consolidated banks. The 1991 LPG reforms opened the door to new private and foreign banks.

Exam Tricks & Tips

• 🎯 "34-49" pair: RBI Act 1934, Banking Regulation Act 1949 — memorise together.
• 🎯 Nationalisation = "69 & 80, 14 & 6" (year and number of banks).
• 🎯 SARFAESI = "Seize without court" — its whole point is recovery without litigation.
• 🎯 IBC 2016 rhymes with "sixteen = resolution in a fixed time".
• 🎯 FEMA replaced FERA — new law is 1999, "Management" not "Regulation".
• ❌ Common mistake: confusing DRTs (1993 RDDBFI Act) with SARFAESI (2002) — different Acts, different years.

Expected exam pattern

Direct one-liners: "Which Act deals with cheques?", "SARFAESI came in which year?", "How many banks were nationalised in 1969?" Sometimes a committee-to-reform match.

Quick recap

RBI Act 1934, BR Act 1949, NI Act 1881, nationalisation 1969/1980, DRTs 1993, FEMA 1999, SARFAESI 2002, IBC 2016; Narasimham committees drove 1990s reforms.

Worked Example

Problem: Solved awareness question: In which two years did the Government of India nationalise major private banks, and how many banks were nationalised each time?

Solution:
Recall the two landmark nationalisation events.
First round — 19 July 1969: 14 major private banks (each with deposits above ₹50 crore) were nationalised under Prime Minister Indira Gandhi to align banking with social objectives and priority-sector lending.
Second round — 15 April 1980: 6 more private banks were nationalised.
Together these brought 20 banks into public ownership, greatly expanding rural branch networks.

Answer: 14 banks in 1969 and 6 banks in 1980 — 20 in total.