Industry & Economy
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Budget
Money & Banking
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Preferential Allotments
Law soon to allow banks to issue pref shares
Our Bureau
New Delhi
,
Feb. 28
IN a move that would go a long way in helping banks to meet their future capital requirements under tightened norms, the Finance Minister, Mr P. Chidambaram, today said that he would move legislative amendments to allow them to issue preference capital.
Banking companies would be allowed to issue preference shares "since preference capital can be treated as regulatory capital under specified circumstances as per Basel norms," Mr Chidambaram said.
Amendments to the Banking Regulation Act, 1949, would also be proposed to remove the floor and the ceiling limits of 25 per cent and 40 per cent on statutory liquidity ratio (SLR). Besides, the RBI Act would be amended to remove the minimum 3 per cent cash reserve ratio (CRR) to be maintained with the central bank.
The move on SLR and CRR is expected to provide the RBI greater flexibility in determining the limits according to the need of the hour and "to facilitate (RBI) a more flexible conduct of monetary policy," Mr Chidambaram said.
He also said that for supervision of the banks and their subsidiaries by the RBI, specific amendments would be proposed in the banking laws.
Changes in the law would also proposed to allow the RBI "to lend and borrow securities by way of repo, reverse repo or otherwise," Mr Chidambaram said.
He said that the RBI would separately announce a roadmap for banking sector reforms. "The RBI has prepared a roadmap 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," the Finance Minister said.
In this context, he hinted that despite no announcements of mergers among strong banks yet, efforts are on for consolidation in the industry.
"It is universally acknowledged that the key drivers of the banking sector in the future will be competition, consolidation and convergence," Mr Chidambaram said.
On pension reforms, the Finance Minister said that the a Bill would be introduced in the current session of Parliament to replace the Ordinance issued in December to set up the Pension Fund Regulator and Development Authority (PFRDA).
He said that seven states - Andhra Pradesh, Chhattisgarh, Himachal Pradesh, Manipur, Rajasthan and Tamil Nadu - have introduced schemes similar to the one floated for new Central Government recruits under the new pension system.
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