Govt pushes for voting cap removal in private banks

The government has started talking with all political parties, including the Left, to remove the 10 per cent cap on voting rights of investors in private banks.

While the Cabinet has approved the proposal, a Bill to amend the Banking Regulation Act to this effect will be introduced in Parliament this winter session.

While releasing an Assocham study on consolidation of Indian banks, minister of state for finance Pawan Kumar Bansal said the government may allow investors to get voting rights up to 26 per cent against the current 10 per cent.

"Mergers and consolidations in banking sector will be difficult if the cap is not removed," he said.

Government is trying to garner support from the Left parties and other allies at the Centre to facilitate the passing of the Banking Regulation Bill in the winter session. Left parties have been opposing the amendments.

Allaying fears, the minister said amendments will not result in the takeover of Indian banks by multinationals.

Referring to consolidation of Indian banks, Bansal said consolidation was necessary to improve access to institutional credit.

In India, 27 per cent of the population has access to institutional credit, while 22 per cent have access to non-institutional credit.

The remaining 51 per cent of the population does not have access to any kind of credit.

"With consolidation, banks will be able to offer better financial services. The decision to merge is, however, up to individual banks. Government can only facilitate the process," Bansal said.

Consolidation in banking industry will make risk management in banks much more effective and this will in turn bring down the cost of operation," said S K Jindal, chairman of Assocham, investment committee.