The Hindu Business Line : Banking sector: Reform roadmap

There are many banks in India but none among the top twenty in the world. Our largest bank, the State Bank of India, ranks 82 in terms of business. It is universally acknowledged that the key drivers of the banking sector in the future will be competition, consolidation and convergence.

The RBI has prepared a road map for banking sector reforms and will unveil the same. While most proposals will be implemented by the RBI on its own authority, some legislative changes would be required to be made.

I had promised that a comprehensive Bill to amend the Banking Regulation Act, 1949 will be introduced in the Budget Session. In consultation with the RBI, I propose to introduce amendments to the Act:

To remove the lower and upper bounds to the statutory liquidity ratio and provide flexibility to RBI to prescribe prudential norms;

To allow banking companies to issue preference shares, since preference share capital can be treated as regulatory capital under specified circumstances as per Basel norms;

To introduce specific provisions to enable the consolidated supervision of banks and their subsidiaries by the RBI in consonance with the international best practices in this regard;

I also propose to introduce amendments to the Reserve Bank of India Act, 1934:

To remove the limits of the cash reserve ratio to facilitate more flexible conduct of monetary policy; and

To enable the RBI to lend or borrow securities by way of repo, reverse repo or otherwise.

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