The Hindu Business Line : Bill to lift voting rights cap in banks introduced

The RBI may specify the minimum percentage of shares to be acquired in a banking company if it considers that the purpose for which the shares are proposed to be acquired by the applicant warrants such minimum shareholding.

New Delhi , May 13

PUSHING banking reforms a step further, the Finance Minister, Mr P. Chidambaram, today introduced a Bill in the Lok Sabha to remove the 10 per cent voting rights cap for private banks and make such rights commensurate with economic ownership.

The Bill to amend the Banking Regulation Act, 1949, also seeks to provide the Reserve Bank of India the power to specify acquisition of minimum percentage of shares in a bank.

"The Reserve Bank of India may specify the minimum percentage of shares to be acquired in a banking company if it considers that the purpose for which the shares are proposed to be acquired by the applicant warrants such minimum shareholding," according to the Bill.

The Bill also proposed to remove the legislative barriers on statutory liquidity ratio (SLR) to provide complete flexibility to the RBI to determine the floor and ceiling.

In a related move, the Finance Minister also introduced a Bill to amend the RBI Act, 1934, to give flexibility to the central banks to determine the cash reserve ratio (CRR) by removing the three per cent floor.

Both legislations were referred to Parliamentary Standing Committee on Finance after they were introduced.

While seeking to remove the voting right cap, the Bill stipulates that prior approval of the RBI would be required for any acquisition above 5 per cent of the share capital of a bank. It also seeks to allow banks to issue preference shares in accordance with the guidelines issued by the RBI.

The Bill also seeks to allow the RBI to supersede the board of directors of a bank and appoint an administrator to manage the bank. It has been pointed out that while the RBI currently has powers to remove individual director and officers, it cannot to do away with the entire board if its collective functioning is detrimental to depositors' interest.

Since the present restriction on lending to directors and companies of firms in which the directors are interested was posing difficulty for banks in appointing independent directors, the Bill proposes to allow the central bank to grant exemption to banking companies in appropriate cases.

Powers would also be given to the central bank to order a special audit of cooperative banks for more effective supervision in public interest.

Besides removing restrictions on CRR, the Bill to amend the RBI Act also proposes to empower the RBI to deal in derivatives, to lend or borrow securities and to undertake repo or reverse repos, the other monetary instruments used to deal with excess or inadequate liquidity.

It also empowers the RBI to lay down policy and issue directions to any agency dealing in various kinds of contract in respect of Government securities, money market instruments and derivative and to inspect such agencies.

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