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May 8, 2002 | 1330 IST
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Cabinet nod for bank reform Bill

BS Economy Bureau

The Union Cabinet on Tuesday approved the introduction of a Bill to put in place securitisation and asset foreclosure laws and also create a legal framework for the establishment of asset reconstruction companies.

While the laws governing foreclosure and ARCs will aid banks and financial institutions to recover non-performing assets of nearly Rs 780 billion, securitisation will help them market such assets and enhance liquidity in the system. This will enable them to lend more, once credit off-take picks up.

Senior finance ministry officials told Business Standard that the government would go ahead with its plans to set up an ARC under the existing legal framework even before the Bill is passed.

"The Bill will help us to plug the gaps in the present legislative framework and enable us to set up more ARCs in the country," an official said.

For long, bankers have been asking for foreclosure laws. With such laws, it will be possible for them to attach the properties of defaulters. The government had proposed to give attachment powers to the ARCs as well.

The finance ministry official added that the proposed securitisation norms were broadly on the lines of the existing set of rules for the securitisation of assets of housing finance companies.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Bill, 2002, will be introduced in the current session of Parliament, which is slated to end on May 17.

The government had initially planned three separate pieces of legislation on the issue but decided to merge them to speed up the process. Finance Minister Yashwant Sinha had announced the introduction of a comprehensive Bill on banking reforms in the Budget.

The cabinet also cleared a proposal for amendments to the Negotiable Instruments Amendment Bill, which is pending in the Lok Sabha. The amendments include e-commerce transactions.

The amendments state that executive directors of a company will be held responsible if cheques issued by the company bounce. The parliamentary standing committee on finance had suggested changes to the Bill. The changes have now been accepted and incorporated by the government.

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