The Hindu : Business : Bill on banking sector reform introduced

Online edition of India's National Newspaper
Wednesday, Aug 17, 2005

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Bill on banking sector reform introduced

Special Correspondent

Government to retain majority stake in public sector banks

NEW DELHI: The Centre on Tuesday introduced in the Lok Sabha a major legislation to bring about reforms in the banking sector but only after omitting the NDA Government's proposal to reduce the Government's equity stake in public sector banks (PSBs) to 33 per cent from the existing 51 per cent.

In effect, the Banking Companies (Acquisition and Transfer of Undertakings) and Financial Institution Laws (Amendment) Bill, 2005, introduced in the House by the Minister of State for Finance, S.S. Palanimanickam, retains all the provisions contained in the earlier Bill, except reduction in Government equity in the PSBs.

The bill to amend the two legislations — the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and 1980 — was first introduced by the NDA Government in December 2000. However, owing to dissolution of the 13th Lok Sabha, the Bill had lapsed.

The revised amendment bill seeks to empower the Central Government to supersede, on the recommendation of the Reserve Bank of India (RBI), the board of directors of any nationalised bank and constitute the Financial Restructuring Authority and appoint a Chief Executive Officer (CEO) of such bank.

The amendments now proposed in the revised bill seeks to allow one to three shareholder directors on the Board of the nationalised banks on the basis of issued capital of the bank instead of one to six directors as per the existing provisions so as to provide for a more equitable representation on the board.

The bill seeks to omit the provisions relating to mandatory nomination of directors by the RBI and financial institutions on the board of the PSBs but confers power upon the Central bank to appoint one or more additional directors. According to the `Statement of Objects and Reasons' of the bill, it provides for raising the number of full-time directors from two to four in nationalised banks and seeks to empower the shareholders to adopt and approve the Directors' account and annual accounts and balance sheet of the PSBs.

The amendment bill seeks to enable the banks to transfer the unclaimed dividends for more than seven years to the Investor Education and Protection Fund set up by the Centre under section 205C of the Companies Act, 1956.

The Bill also seeks to bring in the necessary amendments to ensure that non-official directors vacate their offices on the expiry of their term even if their successors are not appointed by then.

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