Left parties no longer a hurdle to three crucial bills.
One segment with high hopes from the new government is the financial sector. In the past five years, there have been few big-bang reforms to talk about. Now, with the Left out of the way, the sector is hoping some key legislative changes will finally come through.
There is likely to be some movement on passage of the Bill to amend the Insurance Act, 1938. Apart from raising the foreign investment ceiling to 49 per cent, from 26 per cent at present, the Bill had proposed to do away with the stipulation on Indian promoters having to mandatorily sell a part of their holdings after 10 years of operation.
“The clear mandate for a stable government will bring in both political and economic stability. With improved stock markets, improved liquidity and easier access to capital, the life insurance industry's prospects look bright. Long-term reforms in the financial services sectors like life insurance will further enable millions of Indians to secure themselves and build financial plans to meet their life stage needs,” said Max New York Life MD and CEO Rajesh Sud.
“If the Bill is passed, it would lead to revolutionary changes in the insurance industry. The Insurance Act dates back to 1938 and it requires a set of amendments. But a lot will depend on how the rules for going public are formulated,” added U S Roy, Managing Director and CEO of SBI Life.
“With a stable government in place, we will see movement in the positive direction in the absence of pulls and pressure from the coalitions. We will see a harmonisation between the pension and insurance industry,” said HDFC Standard Life’s Principal Officer and Executive Director, Paresh Parasnis.
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The Bill to amend the insurance laws was introduced in Parliament in 2008. There are two other Bills – for providing statutory backing to the pensions regulator and to amend the Banking Regulation Act – which have been pending in Parliament for over five years, mainly due to the Left’s opposition.
While the Bharatiya Janata Party was willing to support the two Bills, the Congress-led UPA did not push these to avoid any embarrassment. But now the Left is no longer an ally of the re-elected UPA, the Bills may finally be enacted, especially with BJP leader L K Advani promising to cooperate with the new government.
For a start, the Pension Fund Regulatory & Development Authority Bill will allow the regulator to issue regulations, instead of the present system where it has to enter into agreements with service providers such as the fund managers. In addition, it will also help PFRDA regulate the pension products offered by life insurance companies. The new government, which is expected to present a budget in 45 days, may announce tax benefits on investment in the New Pension Scheme, which will help make it attractive for investors.
The amendments to the Banking Regulation Act will allow foreign investors to exercise voting rights in line with their shareholding. While the Reserve Bank of India has concerns on greater play for foreign banks, it will have no reservations in getting more powers for regulation of banks and supercession of borads, which are provided for in the Bill.
Like the Bill to amend the BR Act, which has lapsed, the government will also re-introduce the Micro-finance Development and Regulation Bill and the State Bank of India (Amendment) Bill.
The former Bill seeks to bring about regulations, while the amendments to the law governing SBI will enable the Centre to reduce its stake to 51 per cent. Once parliamentary permission is granted, SBI is planning a public offer to raise funds and meet a part of its requirement for Rs 60,000-70,000 crore capital over the next three years.
Though the Left is out, the new Congress-led coalition will also have to seek comments from banks and unions on consolidation in the public sector space, something it has talked about for five years but has little to show.
Bankers, however, said that the government may not be in a hurry to push through consolidation, given that fiscal issues would take priority in the initial months.
Besides, the unions are still not in favour of consolidation. C H Venkatachalam, Convenor of the United Forum of Bank Unions (UFBU), said that the reforms agenda will create problems for the sector and the unions would oppose these efforts through agitation.
Though RBI has also suggested that the government holding in public sector banks should fall below 51 per cent, the new government is unlikely to see merit in the proposal, said a banker. “The Congress has in the past talked about retaining the public sector character of banks. It is difficult to go back now,” he added.
“While we are talking of reducing the holding of the state in banks, governments in developed countries such as the US, the UK and Germany are picking up stake in battered banks to salvage them,” said a top executive with a Mumbai-based public sector bank.
Ernst & Young’s head of financial practices, Ashvin Parekh, said the global turmoil may provide new lessons, so there could be a new set of reforms.