The Hindu Business Line : Banking reforms may slow down

Though equity holding by foreign investors is permitted up to 74 per cent in Indian private banking companies, voting rights are restricted to 10 per cent.

Several foreign banks have, in the past, sought amendments to the statute for expanding operations within the country through acquisitions or mergers with domestic private sector banks.

Bankers said that most of the potential foreign investors have now put the brakes on acquisition proposals, without any clear signals from the new Government.

They added that opposition to these amendments had in the past come from the Left.

They also expect a halt in the Government's commitment to reducing its equity stake in public sector banks progressively to 33 per cent. This commitment was given in the Budget two years back.

Subsequently, public sector banks have raised equity from the markets bringing down Government stake.

However, even this proposal had been opposed by the Left-led unions, who have repeatedly spoken in protest against Government equity dilutions.

In February this year, Left unions had called a nationwide strike opposing privatisation and dilution of equity in the public sector.

As a result of the opposition, the second round of public issues proposed by the public sector banks for strengthening of their equity capital is expected to be delayed.

" Since they (Left parties) are now part of the new Government, without their express clearance there is no way equity dilutions or divestments can take place," top bankers said.

Besides, with the stock markets facing extreme volatility, new issues are not expected to get the desired pricing.

Instead, most of the recapitalisation would take place only through the tier two route and through recovery of some of the bad assets. These recoveries would be used to strengthen the reserves, they added.

They said the second round of the voluntary retirement scheme pushed by some of the public sector banks would also likely be shelved.