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P. Devarajan

BANKING reforms are not on the New Delhi radar. The Budget did not make a mention. Bankers are not surprised.

"Life will go on. New Delhi will run the banking system and we will offer our obeisance," said the chairman of a public sector bank.

Bankers draw a line between the Jalan and Reddy eras. As RBI Governor, Dr Bimal Jalan did go along with New Delhi on amending various banking Acts to get Government shed equity in banks to 33 per cent from 51 per cent and doing away with the iniquitous 10 per cent cap on voting rights. The RBI under Governor, Dr Y.V. Reddy, has apparently no appetite for change though there is no evidence in public domain to prove the shift. Dr Reddy is in favour of the 10 per cent limit on voting rights and that today has no relevance to bankers in the private sector after the RBI edict to limit individual and corporate stake in private banks to 5 per cent and 10 per cent respectively.

"That hurts. The RBI could have tackled wrong doing in any particular bank but shutting out all on no valid grounds is indeed shocking," admitted a retired RBI officer. The RBI has not made public its reasons which look a trifle unfair. The annual policy statement for 2004-05 put out by Dr Reddy, on May 18, lists the legislative agenda which is technically dead today. The new Government will have to revive the Bills and place them in the Lok Sabha. If there was an agenda, the Budget should have talked of it. That has not happened. Some of the Bills which the previous Lok Sabha was to take up were: Financial Companies Regulations Bill, 2000; Banking Regulation (Amendment) Bill, 2003; Banking Regulation (Amendment) and Miscellaneous Provisions Bill, 2003. The legislative proposals which were being considered by the previous Government were: Reserve Bank of India Act, 1934; Draft Bill on Credit Information Bureau Regulation; Bank Deposit Insurance Corporation Bill; Draft Bill on Government Securities.

The Credit Information Bureau has set up its offices and some exchange of information is taking place though the biggest retail player, ICICI Bank, has yet to join. Neither the RBI nor the Government is keen on giving space to private banks; public sector banks will continue to report to RBI, the banking department in the Finance Ministry and any influential politician walking the roads. After agreeing to 74 per cent foreign investment in private banks, the RBI has limited FDI in private banks to 10 per cent. There is a limit of 10 per cent for an individual FII with the aggregate limit for all FII restricted to 24 per cent which can be raised to 49 per cent with the approval of the Board. But the RBI has now stepped in with the caveat; its okay is necessary when FII stake touches the 5 per cent mark as per the February 3, 2004 circular. This particular guideline alone is enough as it mandates RBI clearance for stake purchase at 5 per cent and beyond. At one time, there was talk of Government setting up a committee to study merger of and consolidation of banks to thin bank population.

That again does not figure anywhere in the Government log book.

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Banking reforms: Govt logs out

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