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Govt clears Banking Bill, retains voting right at 10%

The Cabinet, while approving changes in the proposed the Banking Laws (Amendment) Bill 2011, said that cap on voting rights in private sector banks, which is currently at 10%, could be raised to 26% in a phased manner

New Delhi: The Union Cabinet on Thursday decided to retain the voting rights in the private sector banks at 10% and felt it could be raised progressively to 26% as suggested by the Standing Committee, reports PTI.

The decision, according to the sources, was taken by the Cabinet while approving changes in the proposed the Banking Laws (Amendment) Bill 2011.

It has been decided that cap on voting rights in the private sectors, which is currently at 10%, could be raised to 26% in a phased manner.

In December last year, the Parliamentary Standing on Finance had recommended raising voting rights of investors in the private sector banks but with a cap of 26% with a view to maintaining a balance between economic control and promoting corporate democracy.

The Banking Laws (Amendment) Bill 2011, introduced in the Lok Sabha in March 2011, had proposed providing voting rights to investors commensurate with their shareholding in the private sector banks.

At present, the voting right is capped at 10% irrespective of the share holding in the private sector banks.

The committee in its report on the Banking Laws (Amendment) Bill 2011 tabled in the Lok Sabha had suggested the Reserve Bank of India (RBI) must ensure that regulatory mechanism is adequate and strictly complied with to prevent any misuse of the provision of increasing the limit.

It had recommended that RBI, being the nodal agency in the banking sector, should conduct due diligence of “fit and proper persons/entities...”

The draft legislation seeks to bring amendments in three related laws relating to the banking sector.

These laws are: Banking Regulation Act, 1949, the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970, and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980. It also proposes to make consequential amendments in certain other enactments.

The nationalised banks would be allowed to decrease or increase their authorised capital beyond a ceiling of Rs3,000 crore, but with the approval of the central government and the RBI.

On norms for mergers in the banking industry, no approval will be required from the Competition Commission of India, the anti-monopoly watchdog. Only RBI clearance would be needed for mergers.

The amendment in the banking laws would help the sector be in sync with the “international best practices”, the statement of Objects and Reasons of the bill tabled in March 2011 said.

As per the draft, anyone seeking to acquire 5% or more share capital of a banking company would need a nod from the banking regulator.

There are 20 nationalised and 22 private sector banks in the country.

The proposed amendments as regards the RBI’s role would enhance the regulatory powers of the apex bank and increase the access of the nationalised banks to the capital market for expansion of the banking business, the draft had said.

Reacting to the government’s move, Shinjini Kumar, director (banking regulations) of PWC India said the amendment opens interesting possibilities for bank ownership and governance, especially in relation to small private sector banks.

“It is also likely to attract the attention of global investors in India's banks,” Mr Kumar added.

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