The Standing Committee on Finance in its report on the Insurance Laws (Amendment) Bill, 2008, said the proposal to increase the FDI cap to 49% in insurance companies seems to have been decided upon “without any sound and objective analysis of the status of the insurance sector following liberalisation”
New Delhi: In an another instance which may stall reforms, a Parliament panel has rejected the government proposal to hike the foreign direct investment (FDI) cap in the insurance sector to 49%, saying this may not have the desired effect and could expose the economy to global vulnerability, reports PTI.
The Standing Committee on Finance in its report on the Insurance Laws (Amendment) Bill, 2008, said the proposal to increase the FDI cap to 49% in insurance companies seems to have been decided upon “without any sound and objective analysis of the status of the insurance sector following liberalisation”.
“The committee feel the suggested policy stance of enabling a greater role for foreign capital in the insurance sector, may not necessarily have the desired impact...” the report, tabled in Lok Sabha, said.
The panel, headed by senior BJP leader Yashwant Sinha, however, agreed with the need to bring in comprehensive changes in the archaic laws governing the insurance sector.
“Increased role of foreign capital may lead to the possibility of exposing the economy to the vulnerabilities of the global market... flight of capital outside the country and also endangering the interest of the policy holders,” it said.
It further said that in view of the fact that the finance ministry could not convincingly justify the proposal, the committee considers that any further hike in FDI cap in the present global economic scenario, may not be in the interest of the Indian insurance industry.
It noted that the common man too would not stand to gain through insurance, particularly as a means of social security.
The Bill was introduced in the Rajya Sabha in December 2008 with an aim to bring improvement and revision of laws relating to insurance business in the changed scenario of private participation. It was referred to the Standing Committee.
Last month, the government had to shelve its plan to allow 51% FDI in the multi-brand retail amid stiff opposition from different parties, including some of its own allies.
The Parliamentary Standing on Finance in its report on the Banking Laws (Amendment) Bill 2011 tabled in the Lok Sabha suggested the RBI must ensure that regulatory mechanism is adequate and strictly complied with to prevent any misuse of the provision of increasing the limit
New Delhi: A parliamentary panel today 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, reports PTI.
The Banking Laws (Amendment) Bill 2011, introduced in the Lok Sabha in March this year, 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%.
“The (finance) ministry may consider increasing the limit only to 26% in order to keep a balance between conflicting factors underpinning the decision, namely concentration of economic power/control and promotion of corporate democracy,” said the Parliamentary Standing on Finance headed by BJP leader Yashwant Sinha.
The committee in its report on the Banking Laws (Amendment) Bill 2011 tabled in the Lok Sabha 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 recommended that RBI, being the nodal agency in the banking sector, should conduct due diligence of “fit and proper persons/entities...”
The apex bank should also take sufficient safeguards while stipulating conditions as to credentials, source of funds, track record, financial inclusion, before granting approvals under this clause, it said.
The committee, in its report, also asked the government to consider merits of issuing non-voting shares as an avenue to expand the capital base of banks without allowing concentration of management control in a few hands and which would also enable the banks to grow faster.
The panel, however, has supported the government’s proposal to keep bank mergers outside the purview of the Competition Commission of India (CCI) temporarily but with certain caveats.
While it supports the government's proposal to keep bank mergers outside CCI’s purview, it recommended that this exception should be considered as a special case.
It suggested an expedient measure be revisited in “due course in the light of experience gained by” regulators RBI and CCI.
The government had tabled the Bill in Parliament during the Budget Session, after which it was referred to the committee.
While presenting the report, the committee, however, clarified that the report does not convey its views on mergers and acquisition policy in banking sector as such, saying that the issue merits a separate discourse.
The standing committee also suggested the proposed Depositor Education and Awareness Fund as provided in the Bill should be created without compromising the rights and claims of depositors or their legal heirs who should be able to secure their claims without difficulty.
The panel said legal heirs of depositors should be informed before transfer of funds to the Depositor Education Protection Fund.
According to it, even after the transfer to the fund, the bank would be liable to repay with interest justified claims of depositors within a period of one month of claim.
The report suggested that the RBI should be mandated to refund the claimed amount under the fund immediately on demand from the concerned bank.
It added the government may also consider incorporating a similar provision for deciding the fate of unclaimed articles under safe custody of the banking company or lying in the lockers which have not been operated for more than a certain period of time.
The standing committee said that while it broadly endorses proposals contained in the Bill, recent failures of some major private banks internationally and lessons from that episode should not be lost sight of while formulating the new policy on banking licences.
It said that stability of the banking system should be preserved while nurturing growth and development of the banking sector as a whole and issues and concerns like banking penetration, and financial inclusion should remain paramount.
It also said that as frequent amendments in banking laws are being suggested, the government should come up with an integrated modern banking law for the country, which will be comprehensive and will consolidate all related provision of banking presently dispersed in different statues.
It also suggested changing the words ‘other purpose’, which could have a wide connotation and lead to ambiguities, with “incidental or ancillary to the promotion of depositor interest” with regard to utilisation of the depositors' fund.
The panel suggested that considering the wide scope and amplitude proposed in the definition of ‘Associate Enterprises’ of a banking company, the RBI regulatory mechanism should be beefed up in view of their expending role and augmented functions as proposed in the Bill.
With regard to suppression of board of directors of banking company and appointment of administrator, the committee has recommended changes to be made in the provisions to indicate the qualification of the administrator.
It suggested that no serving and retired officer of the central government and state governments should be considered for appointment as administrator and called for suitable amendments in the sub-clause of the Bill dealing with this provision.
Fitch’s revision of India’s growth forecast comes less than a week after another ratings agency, Crisil, last week lowered India's growth projection in 2011-12 to 7% from the earlier estimate of 7.6%
New Delhi: Ratings agency Fitch today revised its growth projection for the Indian economy in 2011-12 downward to 7% from the earlier estimate of 7.5% on account of sustained inflation, global slowdown and high domestic interest rates, reports PTI.
In its report, ‘Global Economic Outlook: December 2011’, the agency said the Indian economy is likely to regain the 8% economic growth trajectory only in 2013-14.
“India’s economic outlook remains challenging as growth is likely to slow against a backdrop of elevated inflation.
The economy is likely to remain weighed down by a combination of the weaker global economy and higher domestic interest rates,” it said.
“This has prompted Fitch to revise down its real GDP growth forecast to 7% in FY11-12... from 8% earlier,” it added.
The agency has also revised its growth forecast for 2012-13 downward to 7.5% from 8% earlier and for 2013-14 to 8% from the previous estimate of 8.5%.
“The Indian GDP (gross domestic product) growth rate is expected to touch the 8% mark in FY13-14 only,” it said.
Fitch’s 7% economic growth projection for the current fiscal is way below the government’s 7.5% forecast. The government, in its Mid-Year Review released last week, revised the growth projection to 7.5% from the forecast of 9% in the pre-Budget survey.
The Indian economy expanded by 8.5% last fiscal.
The Fitch revision comes at a time when the economy grew by a mere 6.9% in the July-September period, the lowest in nine quarters.
Industrial production witnessed a contraction after 28 months and shrank by 5.1% in October.
India Inc has blamed repeated rate hikes by the Reserve Bank of India (RBI), which have led to an increase in the cost of borrowings, for hindering fresh investment and the slowdown in industrial activity.
Headline inflation has been above the 9% mark since December last year. The RBI has increased key policy rates 13 times since March 2010 to curb demand and tame inflation.
“Headline inflation may not ease soon due to supply side pressure... Although the combination of slower economic growth and higher interest rates could eventually reduce demand driven pressure, supply-side pressures may not ease so quickly,” Fitch said.
It said the recent weakening of the rupee, which has fallen roughly 15% in the past three months, coupled with elevated commodity prices, particularly crude oil, suggests that it will take time before headline inflation exhibits a significant improvement.
The RBI and the government have projected headline inflation to moderate to around 7% by March 2012.
Regarding the impact of the Eurozone crisis on India, Fitch said any prolonged uncertainty would impact the domestic economy.
Fitch’s revision of India’s growth forecast comes less than a week after another ratings agency, Crisil, last week lowered India's growth projection in 2011-12 to 7% from the earlier estimate of 7.6%.