The Hindu Business Line : Govt to allow proportionate voting rights in banks

THE Union Cabinet on Thursday approved the introduction of a Bill to lift the 10 per cent voting rights cap in private sector banks. The Bill to amend the Banking Regulation Act, 1949, would make voting rights commensurate with economic ownership.

The Cabinet also approved the proposal to amend the law to enable banking companies to issue preference shares. The move is expected to help public sector banks to raise capital while adhering to the restrictions on dilution of Government equity below 51 per cent.

Amendments would also be proposed to empower the Reserve Bank of India to supersede the boards of a banking company.

Suggesting changes in the banking laws, the Government has said that the present Banking Regulation Act and the RBI Act have been found inadequate in the context of reforms in the financial sector. It has said that the changes proposed would allow the RBI to lay down definite policies and issues directions to monitor them.

In keeping with the budget proposal to allow more flexibility to the RBI in determining the reserve requirements, the Cabinet also agreed to remove the floor and ceiling on statutory liquidity ratio (SLR) and to remove the floor for Cash Reserve Ratio (CRR).

While the Banking Regulation Act provides that SLR should be aminimum 25 per cent and a maximum 40 per cent, the RBI Act stipulates that CRR cannot go below three per cent. After the laws are amended, the RBI would have full flexibility to determine whatever level it considers appropriate in a given situation.

The Banking Regulation Act would also be amended to modify the definition of `approved securities' as the securities issued by the Central Government or State Government and the securities specified by the RBI.

The amended law would also empower RBI to direct banking companies to furnish financial statements or disclose business affairs of their associate enterprises and to inspect them. The RBI would also be allowed to grant exemption to any banking company from the provisions of Section 20 of the Banking Regulation Act that stipulates restriction on entering into any commitment for granting any loan or advances to any company.

The Act would also be amended to make it mandatory for primary credit societies to carry on the business of banking only after obtaining a licence from the RBI, which would also be given the powers to carry out special audit of accounts of co-operative banks in public interest.

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