The Hindu : National : Banking Act to be amended

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Tuesday, Mar 01, 2005

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Banking Act to be amended

By Our Special Correspondent

NEW DELHI, FEB. 28. The Banking Regulation Act, 1949 is in for major changes as the current scenario presents a picture of paradoxes.

Presenting the budget in the Lok Sabha on Monday, the Finance Minister, P. Chidambaram, said that while the Reserve Bank of India (RBI) had prepared a roadmap for reforms and most proposals, to be unveiled soon, would be implemented by the bank on its own authority, some legislative changes would be necessary as in the future, the key drivers of the sector would be competition, consolidation and convergence.

Accordingly, amendments in the Act are to be introduced to remove the lower and upper bounds to the statutory liquidity ratio and provide flexibility to the RBI to prescribe prudential norms. Changes are also to be made in the existing legislation to allow banking companies to issue preference shares as preference share capital can be treated as regulatory capital under specified circumstances as per the Basel-II accord norms. These apart, specific provisions are to be introduced to enable the consolidated supervision of banks and their subsidiaries by the RBI in consonance with the international best practices.

Mr. Chidambaram said that he proposed to bring in amendments to remove the limits of the cash reserve ratio to facilitate more flexible conduct of monetary policy and to enable the RBI to lend or borrow securities by way of repo, reverse repo or otherwise.

These measures are expected to free banks to function as comparatively free enterprises and compete with other banks on an equal footing. No bank in the country ranks among the top 20 in the world. India's largest bank, the State bank of India, ranks a lowly 82nd in terms of business.

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