The Hindu : Business : Bill to lift curb on bank voting rights tabled

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Saturday, May 14, 2005

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Bill to lift curb on bank voting rights tabled

Special Correspondent

Standing Committee on Finance to scrutinise

NEW DELHI: In its bid to usher in major reforms in the financial sector, the Government on Friday introduced two major banking legislations in the Lok Sabha on the last day of the current session only after the Speaker thwarted the efforts of the Left parties to block them.

Introduced by the Finance Minister, P. Chidambaram, the long-awaited Banking Regulation (Amendment) Bill, 2005 seeks to lift the existing 10 per cent ceiling on the voting rights of foreign banks irrespective of their equity holding in Indian banks.

In effect, the legislation seeks to provide voting rights to foreign banks in proportion to their equity stake in the domestic banks.

At the same time, however, to put a check on such activity, the Bill also provides that any person acquiring more than 5 per cent equity stake in an Indian bank will have to obtain the prior approval of the Reserve Bank of India.

The second legislation seeks to amend the Reserve Bank of India Act to provide, among other things, more operational flexibility to the central bank to fix the Statutory Liquidity Ratio (SLR) and the Cash Reserve Ratio (CRR) so as to make available more funds for productive growth. It also seeks to empower the RBI to deal in derivatives, lend or borrow securities, undertake repo or reverse repos and the other monetary instruments for checking excess or inadequate liquidity.

In view of the policy differences within the coalition supporters of the United Progressive Alliance (UPA) Government, both the Bills were referred to the Parliamentary Standing Committee on Finance immediately after their introduction in the House.

According to the statement of objects and reasons, the amendments to the Banking Regulation Act is to enable the RBI to specify acquisition of a minimum percentage of shares in a banking company, if considered necessary.

Credit information cos.

The legislation also seeks to empower the RBI to supersede the board of directors of banks and appoint an administrator to manage such banks till alternative arrangements are in such cases where the bank boards are found to function in a manner, which is detrimental to the interests of depositors.

Also, by making its regulatory powers more effective, the RBI is proposed to be given powers to order special audits of cooperative banks for more effective supervision in public interest.

A Bill to set up and regulate credit information companies received the approval of Parliament on Friday after the Lok Sabha cleared it on the assurance of Mr. Chidambaram that the Government meant business in bringing down the non-performing assets (NPAs) of banks. The Rajya Sabha has already approved the Bill.

Replying to the discussion on the Bill, Mr. Chidambaram said the gross NPAs of banks had declined from Rs. 70,861 crores in 2002 to Rs. 64,786 crores in 2004.

With a further slide this year, he said the legislation would help the banking system in becoming world- class.

The Credit Information Companies (Regulation) Bill seeks to provide legislative support to the business of credit information to equip banks to deal with NPAs by providing information regarding credit-worthiness of various categories of customers. To start with, the Reserve Bank of India would curb the number of such companies to a maximum of three or four and later take up the matter for review.

Mr Chidambaram explained to the members that the Bill was aimed at preventing accretion of NPAs and had nothing to do with the current NPAs.

"SBI (State Bank of India) has already set up Credit Information Bureaus (India) Ltd. and I hope one or two more public sector banks set up similar agencies," Mr Chidambaram said.

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