The Cabinet today gave its nod to the Banking Regulation (Amendment) Bill, which proposes to increase the voting rights of foreign investors in private sector banks.
The Bill — which seeks to align the voting rights of foreign shareholders in banks in proportion to their equity holding — will make it easier for banks to raise capital. It will be tabled in the current session of Parliament.
At present, there is a 10 per cent cap on voting rights of foreign entities in private banks, regardless of their shareholding.
The Bill seeks to liberalise norms for raising capital through preference shares, according to government officials.
“The Cabinet has approved the Banking Regulations (Amendment) Bill. This is a clear indication that the finance minister is quite serious about the many financial legislation he has talked about (in the Budget speech),” Planning Commission Deputy Chairman Montek Singh Ahluwalia said at an industry event.
Finance Minister Pranab Mukherjee, in his Budget speech on Monday, had listed this as one of the seven Bills the government proposed to bring for financial sector reforms.
“Going forward, as we need capital in banking, this will make it easy for those who are standing on the sidelines to put more capital into banks as and when there are initial and follow-on public offers. It will strengthen the Indian banking system at a time the economy is going great guns,” said State Bank of India Chairman O P Bhatt.
The Bill, first introduced in the Lok Sabha in May 2005, had lapsed as the Lok Sabha was dissolved for general elections in 2009. The government could not move it ahead in its previous tenure due to stiff opposition from the Left parties, which were its allies.
The Bill also proposes to make it mandatory for a person who wants to acquire 5 per cent or more share capital of a bank to get approval from the Reserve Bank of India (RBI). It also proposes to give RBI more operational flexibility in the conduct of monetary policy and power to specify the statutory liquidity ratio without any floor or ceiling.
The restriction on bank lending to directors and companies in which the directors have an interest is leading to problems in appointing competent independent directors. The Bill says it is necessary to empower RBI to grant exemption from this rule in appropriate cases.
