The Hindu : Business : Govt. looking into voting rights in private banks

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Thursday, Oct 19, 2006
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Govt. looking into voting rights in private banks

Special Correspondent

`The present cap of 10 per cent not holding good in the changing scenario'

NEW DELHI: The Central Government on Wednesday said it would talk to its allies to reach a consensus for passing a Bill to amend the Banking Regulation Act in the next session of Parliament to remove the current cap of ten per cent on voting rights in private sector banks.

"Some of our friends have some reservations (on the Bill). We expect to sort out our differences with them,'' Minister of State for Finance P. K. Bansal told reporters here on Wednesday on the sidelines of a function where an Assocham (Associated Chambers of Commerce and Industry of India) study on banking consolidation was released here.

He pointed out that the present cap of ten per cent did not hold good in the changing scenario in the banking industry and observed that it would be premature for him to say whether the cap would be entirely removed or some new limit would be imposed.

The Left parties were opposed to amendment to the Banking Regulation Act, fearing that increase in voting rights in private sector banks would lead to takeover of these banks by foreign entities.

Hopes to resolve issue

Expressing the hope that differences between the Government and the allies over the issue will be resolved, the Minister expected that, as the Left parties gave their consent to the Banking Companies and Financial Institutions Law (Amendment) Bill after via media was found to mandatorily ask the Reserve Bank of India to appoint its representatives on the boards of public sector banks, a common ground would be found in the Bill to amend the Banking Regulation Act as well.

Though the Government wished consolidation of banks to happen, he made it clear that the Government would not force it on the public sector banks, but would act only as a facilitator. It is for the banks' boards to take a decision on how they assess synergy with another bank, the Minister said that consolidation in public sector banks was required in view of the fact that 51 per cent of the country's population was still out of any institutional or non-institutional finance and also to further the cause of competition, reduction of costs of funds, diversification of credit risks and expanding coverage of the banks.

Only if consolidation happened, larger banking entities from India would be able to "invade" the world markets and compete with other players, Mr. Bansal said.

Consolidation

On a hypothetical basis if all 27 the public sector banks were merged, their capital base would be just $3 billion, which stands nowhere against the capital base of $20 billion of single entity in China — Industrial Commercial Bank of China — the Assocham study said.

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