The Audhyariyina committee, set up to suggest reforms in commercial banking laws, is poised to recommend amendments to pave the way for securitisation of assets in the domestic banking sector.
This is the second major recommendation the committee plans to make to the banking division of the finance ministry. The first, to give more legal teeth to the Debt Recovery Tribunal Act (DRT), was accepted by the government and enacted through an ordinance last month.
The four-member committee, under ex-solicitor general T R Audhyariyina, was appointed in March last year.
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Bankers said the freedom to securitise loans would be an important step in the development of the sector. And reforms in bank laws is the next critical phase in the course of financial sector reforms.
Officials said the Audhyariyina committee report would be on external legal environment, like the transfer of payments accounts, enforcement of bank securities, mortage laws etc.
The Narasimham committee report II on banking reforms submitted in 1998, had stressed the need for urgent legal reforms in the sector and suggested the formation of such a committee.
The report pointed out that financial sector reforms beyond a point would be ineffective unless matching reforms take place on the legislative side to reflect current realities and requirements.
Reforms in the banking sector have entered a decisive stage and changes in laws governing the sector are considered critical for reforms initiated to be effective.
Further, the work load for the legal reforms programme have been split between the finance ministry and the Reserve Bank of India (RBI) -- those that would require statutory changes, will be pursued by the finance ministry while the RBI would come out with issue of regulations for some others, the official said.
The ministry has pinned its hopes on Debt Recovery Tribunals (DRT) to recover bad debts, and plans to strengthen the existing eight DRTs by adding another five. It is in the process of adding another four Debt Recovery Appellate Tribunals.
The idea is to have a DRT in every large state. The official said DRTs in recent times have worked well.