The deadline set for the Vasudev panel report on regulation of non-banking finance firms (NBFCs) has been extended by a month to October 31, but finance ministry officials expressed confidence that the report will be finalised in a fortnight.
They also pointed out the ministry had decided to restrict the members in the legal reforms panel, to be formed to suggest changes in laws governing the banking sector, to officials of the banking division, law ministry and department of company affairs (DCA). "The names of the panel members have been forwarded to the finance minister for approval. The body is expected to be announced after the finance minister returns from the US. It will be an internal committee of the government and is not likely to have a representative from commercial banks," the officials said.
Meanwhile, the Vasudev panel will recommend among other things, the need for a separate monitoring agency for the NBFCs. "This is an issue under consideration. If such a body is set up, it must be carved out of the Reserve Bank, the way the National Housing Bank (NHB) was created to regulate the housing finance sector," informed ministry officials.
The setting up of the legal reforms panel would mark the beginning of a most crucial phase of reforms in the banking sector as it is widely felt that reforms in the legal side of the banking sector have not kept pace with the overall deregulation. The archaic laws in the sector have, in particular, proved a major deterrent on the banks' ability to recover non-performing assets (NPA), and banks have been pressing to combine legal reforms with the deregulation of the sector which began after 1991.
The decision to set up a separate legal panel is in response to the recommendations of the Narasimham Committee report submitted in April. The report recognised the need for suitable legislative changes in the banking sector.
Bankers have said that the Asset Reconstruction Company (ARC), recommended by the committee to recover bad loans, will not be a feasible proposition unless mortgage and other laws are strengthened. Further, several Acts, like the State Bank of India Act are to be amended to bring about flexibility in matters relating to changes in the bank's board, etc.
