The Lok Sabha today cleared the Banking Laws (Amendment) Bill, 2011, after Finance Minister P Chidambaram agreed to drop the contentious proposals on allowing banks to indulge in futures trading. He also clarified that status quo would be maintained on the existing jurisdictions of the Reserve Bank of India (RBI) and the Competition Commission of India (CCI) over the banking sector.
Responding to the questions raised by the members during the discussion on the Bill in the lower house, Finance minister P Chidambaram said that the clauses pertaining to these two issues were withdrawn as it was important to pass the Bill to empower RBI.
"Since the Bill is too important for me to pass, therefore I am bringing the Bill dropping the controversial clauses," he said. The Finance Minister added while the central bank would regulate the banking sector, the competition watchdog would look into anti-competitive practices.
Chidambaram said most of the provisions in the Bill was to strengthen RBI and stressed that in Parliamentary democracy, give and take was required and rest of the Bill was important as RBI was waiting for more powers.
Changes to the Bill will pave way for the RBI to issue new bank licences. The RBI has been insisting that before applications are invited for bank licences, the amended law should be in place giving it powers to supersede boards of the banks in the event of any irregularities.
As the Bill has provisions for increasing voting rights of investors in private banks to 26% from 10% at present, it is expected to bring more foreign investment in the banking sector.
In case of public sector banks, voting rights has been enhanced from 1% to 10%.
As the government gave in to the demand of the Opposition to drop these clauses, the Bill was later passed by voice vote after the amendments proposed by Left Parties were rejected by the House. The Bill is now slated to be taken up in the Rajya Sabha.
Insurance Bill, which seeks to raise FDI limit in insurance companies to 49% from 26% at present, would not be taken up for consideration in the ongoing winter Session of Parliament, Chidambaram told reporters after the passage of the Banking Bill.
Earlier, while responding to the discussion on the Banking Bill, he stressed the need for consolidation in the banking sector so that India can have two to three large public sector banks that can compete globally.
The minister also said about 6,000 new bank branches would be opened and the banks planned to recruit around 84,000 people this year. He reiterated the government was committed to infusing Rs 15,000 crore into public sector banks in the current financial year and would give more next year.
The minister said that capital may be infused now by rights issues and bonus shares.
BJP leader Yashwant Sinha, who heads the Standing Committee, had opposed the clauses in the Banking Bill saying those were not considered by his panel. He said the provisions would allow banks to put in their money in speculative trading.
Chidambaram had argued Standing Committee on Food and Consumer Affairs had suggested allowing banks to enter in futures trading. The Forward Contracts (Regulation) Act, 1952 allows all entities to participate in commodity futures trading. Banks can trade in shares, bonds and currencies but Section 8 of the Banking Regulation Act prohibits them from trading in goods.
The original Bill had also sought to keep mergers and acquisitions in the banking sector under RBI, thus exempting them from the purview of CCI.
