The almost seven-year wait for amending the Banking Regulation Act is likely to end on Wednesday, when the Lok Sabha will take up amendments in the Banking Regulation Act for consideration and passage. This is one of three financial sector Bills aimed at ushering in a new phase of reforms.

The Lok Sabha’s list of business for August 22 states that Finance Minister P Chidambaram will move the Banking Laws (Amendment) Bill 2011 to amend the Banking Regulation Act, 1949, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980.India Inc is keenly awaiting passage of this Bill as this will push the Reserve Bank of India to issue new banking licences.

Enactment of this Bill will provide new powers to the central bank. It proposes to confer upon the Reserve Bank the power to call for information and returns from the associate enterprises of banking companies, and also to inspect the same, if necessary.The Bill also proposes to empower the Reserve Bank to supersede the board of directors of a banking company for a total period not exceeding 12 months, and appoint an administrator to manage the banking company during the said period. The RBI feels that such power will help it in regulating new as well as existing entities in a better manner.

Another key feature of the Bill is increasing the voting rights. The Bill had originally proposed raising the ceiling on voting rights of shareholders of nationalised banks to 10 per cent from 1 per cent.

For private sector banks, the Bill talked about removing the existing restriction on voting rights limited to 10 per cent of the total voting rights of all the shareholders. However, it is believed that the Government has accepted the Standing Committee’s recommendation of increasing the limit of voting rights to 26 per cent from the existing 10 per cent.

It is expected that higher voting rights will give investors more leeway. The present Bill contains some provisions of the previous Bill. The previous Bill for amendment in Banking Regulation was introduced in the Lok Sabha on May 13, 2005. Even after the Standing Committee’s recommendation, strong opposition from its then allies the Left Parties forced the Government to allow the Bill lapse in 2009 when the term of the 14{+t}{+h} Lok Sabha ended.

shishir.sinha@thehindu.co.in

(This article was published on August 19, 2012)
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