In a paper on `Second phase of reforms in the banking sector', Assocham president KP Singh, said the since the legalities in regard to debt recovery are archaic and delay-prone, RBI needs to urgently constitute a task force to review the laws so that recoveries are put on the fast track.

The Assocham paper expresses concern at the level of recoveries as a percentage of the amount involved in the cases disposed of by the debt recovery tribunals. The amount recovered was a mere 0.17 per cent in 1996, 0.16 in 1997 and 0.19 per cent in 1998.

The increase in the number of cases transferred to the tribunals along with the number of cases disposed of, therefore, should not make the RBI and the banks complacent. The rise in such cases was 9.1 per cent in 1996,14 per cent in 1997 and 19.8 per cent in 1998.

In a scenario of falling interest rates and reducing spreads, the Assocham chief said it is essential to deploy bank's resources optimally. The credit-deposit ratio of the banking sector has been on an average 50 per cent past few years, and 53.5 per cent as or March 27, 1998 and 51.7 per cent as on March 26, 1999. This is not a sign of viable and vibrant commercial banking, he said.

In the dynamic environment, it is recognised that size is not are flection of profitability and efficiency. On the contrary, a huge sized institution may become cumbersome to be managed efficiently. These days small and medium sized banks are doing well or even better.

Besides the existing banks are facing competition from the non-banking intermediaries. The product coverage has started over lapping. The banks are extending their avenues to fee based activities and getting into ares like merchant banking and insurance. Similarly, the non-banking institutions are getting intothe banking area by extending efficient banking services.

Competition is also offered by corporates by greater financial disintermediation by accessing securities debt domestically and from financial markets abroad. This type of competition will compel banks to stick their interest rates at very low levels.

The Assocham chief advocated the need for giving autonomy to financially strong and profitable public sector banks in the area of personnel management. As competition increases, highly skilled banking professinals will become scarce resources. In such a scenario profitable banks need to have a discretion of recruitment and compensation policies. This would give them the power to retain meritorious and best talent from the market.

These dynamic changes would result in employees relating their performance to the bank's mission. On a continuous basis, training of the staff members would be required in all areas, especially where the new style or technology is in use.

Singh said it is necessary toremove bureaucratic controlsand privatise the banking sector. In this context, the chamber has suggested introduction of pre-disbursement and post-disbursement credit audit system for large advances and systems to tackle potential cases for Board for Industrial and Financial Reconstruction.