39. The recent East Asian crisis has underlined the critical importance of undertaking reforms to strengthen the banking sector. In recent years, RBI has been prescribing prudential norms for banks broadly consistent with international practice. To meet the minimum capital adequacy norms set by RBI and to enable the banks to expand their operations, public sector banks will need more capital. With the Government budget under severe strain, such capital has to be raised from the public which will result in reduction in Government shareholding. To facilitate this process, Government have decided to accept the recommendations of the Narasimham Committee on Banking Sector Reforms for reducing the requirement of minimum shareholding by Government in nationalised banks to 33%. This will be done without changing the public sector character of banks and while ensuring that fresh issue of shares is widely held by the public. The Committee had also expressed the view that the Boards of the banks should have sufficient autonomy to take decisions on corporate strategy and all aspects of business management and be responsible to the stakeholders, that is, the shareholders, the customers, the employees and the public at large. In particular, the interests of the employees of the nationalised Banks will be fully safeguarded. It is proposed to bring about necessary changes in the legislative provisions to accord necessary flexibility and autonomy to the Boards of the banks.

40. As Honourable Members are aware, the Report of the Working Group on Restructuring Weak Public Sector Banks had suggested the constitution of a Financial Restructuring Authority (FRA). It has been decided to have a modified version of the FRA. Thus, in respect of any bank which is considered to be weak or potentially weak, the statutes governing public sector banks would be amended to provide for supersession of the Board of Directors on the basis of recommendations of the RBI and constitution of a FRA for such a bank, comprising experts and professionals. The amendments would also enable the FRA to exercise special powers including all the powers of the Board of the bank.

41. Government will not close down any public sector bank. As responsible owner of the banks, Government have decided to consider recapitalisation of the weak banks to achieve the prescribed capital adequacy norms, provided a viable restructuring programme acceptable to the Government as the owner and the RBI as the regulator is made available by the concerned banks.

42. The high level of Non-Performing Assets (NPAs) in our public sector banks is a cause for continued concern. Efficient and effective mechanisms for recovery of bank dues are critically important for reducing NPAs. I am happy to inform the House that comprehensive amendments have been carried out to the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 by issue of Ordinance. Five more Debt Recovery Tribunals (DRT) and four more Debt Recovery Appellate Tribunals have been set up or are in advanced stage of being set up. I further propose to set up four more DRTs at Mumbai and one more DRT each at Calcutta, Delhi and Chennai to facilitate expeditious adjudication and recovery of dues of banks and financial institutions.

43. The growth of fresh NPAs can also be curbed through better institutional mechanisms for sharing of credit related information on borrowers and potential borrowers among banks and financial institutions. A Working Group constituted by RBI to examine modalities for setting up a Credit Information Bureau has recently submitted its report. Based on its recommendation a Credit Information Bureau will soon be established.

44. In the fast changing world of modern finance it has become necessary to accord greater operational flexibility to the RBI for conduct of monetary policy and regulation of the financial system. Accordingly, I intend to bring to Parliament proposals for amending the relevant legislation.

45. Similarly, to facilitate development of the Government debt market the legislative framework needs to be strengthened and modernised through a Government Securities Act, which I propose to bring to replace the old Public Debt Act, 1944.

46. The Industrial Investment Bank of India is the only Calcutta-based development financial institution. To enable it to improve its viability and profitability by diversifying and extending its business, Government will subscribe to the preference capital of the company.

47. NBFCs perform a significant role as financial intermediaries and in promoting growth of industry and services. Over the past 3 years RBI has taken a number of measures for strengthening the regulation of this sector with a view to ensuring that only financially sound and well run NBFCs are permitted to accept public deposits. I propose to bring a new bill which will strengthen the hands of depositors in situations of malafide or fraudulent actions of NBFCs.