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Left to take bank FDI battle to Parliament

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Aarthi Ramachandran New Delhi
Last Updated : Mar 01 2013 | 2:40 PM IST
Draft note by Left Parties quotes RBI guidelines to attack FDI.
 
The Left parties will oppose in Parliament any move to amend the Banking Regulation Act aimed at giving greater voting rights to foreign investors in private banks. The Bill to amend the Act is awaiting Cabinet clearance.
 
"The removal of the cap on voting rights will require an amendment of Section 12(2) of the Banking Regulation Act. The Left parties stand completely opposed to this proposed amendment," says a draft note prepared by the Left.
 
There could be minor changes in the note before it is submitted to the government at a co-ordination committee meeting next week, Left sources said.
 
The note says allowing acquisition of shares above the current Reserve Bank of India (RBI) guidelines by foreign investors and subsequently presenting the amendment to Parliament as a fait accompli will not be acceptable.
 
The Left goes on to blame the government for disregarding the views of the RBI by forcing it to dilute its guidelines, thereby weakening the regulatory framework.
 
The Left parties quote the policy guidelines on ownership of private banks issued by the RBI on July 2, 2004 in defence of their stand.
 
The RBI had issued draft norms and a second draft is expected soon for public comments. After receiving the comments, the apex bank proposes to come out with the final guidelines.
 
According to the Left, the RBI guidelines states, "No single entry or group of related entities would be allowed to hold shares or exercise control, directly or indirectly, in any private sector bank in excess of 10 per cent of its paid-up capital."
 
The note also says that the previous government, in a March 2004 notification, (which the Finance Minister had read out in defence of banking deregulation during the winter session of Parliament), had hiked foreign investment limits in private banks to 74 per cent from "all sources" like FDI, FIIs and NRIs.
 
The note says "in the interest of diversified ownership, the percentage of FDI by a single group of related entities was restricted to 10 per cent" by the RBI.
 
Therefore, the Left demands that " the UPA Government abandon its move to amend the Banking Regulation Act and maintain status quo as far as the law and the RBI guidelines are concerned".
 
It also questions the Government's claim of a healthy banking sector by pointing out that, while gross and net NPAs as a per cent of total assets or as a per cent of gross or net advances have shown a decline, the absolute values of gross or net NPAs have continued to rise for all categories of banks.
 
The note points out that the government might be framing policies to cater for the needs of pressure groups who are looking at high profits from treasury operations for the foreign banks and quick gains for the promoters of private Indian banks.
 
Taking up an important Left agenda, the note asks whether the FDI hike in the private banking sector will help the rural credit situation in the country.
 
It points out that the share of priority sector credit in the total outstanding credit of foreign banks is 34.2 per cent, which is "well below the 40 per cent norm".
 
It says, of this, the share of agriculture was less than 4.9 per cent in 2002.
 
In this context, the note wants to know how the Government will meet its commitments made in the national common minimum programme, that " ... the social obligations imposed by regulatory bodies on private banks and private insurance companies will be monitored and enforced strictly".

 
 

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First Published: Feb 05 2005 | 12:00 AM IST

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