MUMBAI: The Reserve Bank of India will soon set up a working group to examine deregulation of interest rates, Deputy Governor, Ms Usha Thorat on Wednesday indicated.

Delivering a keynote address at the IBA-FICCI Banking conference here, Ms Thorat said deregulation of interest rates on the savings account is on the radar of RBI and will soon examine the possibility of implementing the same.

However, she said, it has to be seen whether deregulation could help bring more people into the formal banking system. With the country moving towards a base rate system in place of the prime lending rate, the savings bank interest rate at 3.5 per cent per annum was the only regulated rate in the banking system.

Ms Thorat, talking about financial inclusion, said there was a need for an increasing number of alliances between banks and the non-banking financial institutions to have better delivery systems to ensure better last mile connectivity and make financial inclusion a success.

She said the RBI was in the process of "tweaking" regulations on securitisation to ensure the growth of the securitised market in an orderly manner. Banks should also ensure that there is no excessive borrowing as they could lead to the formation of bubbles, thus impacting the stability of the system, she said.

The Deputy Governor urged the banks to go in for more forward looking provisions to cover their non-performing assets in the scenario of high growth in credit as witnessed in the recent years, increasing NPAs would be an "inevitable" scene in the future. She also highlighted the need for development of finance institutions to launch more risk mitigants such as the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE), which offers collateral-free loans for the benefit of small farmers, landless agricultural labourers, those engaged in allied activities related to agriculture and those affected by natural calamities. Meanwhile, the Reserve Bank has asked lenders to work out a special concessional package for the crisis-ridden aviation sector, reeling under financial debt burden of staggering ` 60,000 crore.

In response, banks said they would look into the problems of airlines on case-by-case basis.

The Indian airline industry is facing mounting debts due to the economic downturn and resultant excess capacity, which still exists. Of late, the industry has been showing signs of recovery, which could gather pace if banks restructure loans.

According to an estimate, the cumulative debt of the airline industry stands at about Rs 60,000 crore. As of March, 2010, Air India had about Rs 40,000 crore debt, while Kingfisher had a debt of about Rs 6,000 crore.