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More action in Parliament

K.R. Srivats
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Three key Bills are in focus.— V.V. Krishnan
Three key Bills are in focus.— V.V. Krishnan

With both Houses of Parliament voting in favour of foreign direct investment (FDI) in multi-brand retail last week, the Government is all set to ride on the political momentum gained from the vote to push through key economic legislation in the coming week.

There are at least three Bills slated to be introduced or considered for passage in the Lok Sabha on Monday itself: the Banking Laws (Amendment) Bill, the Competition Amendment Bill, and the Enforcement of Security Interest and Recovery of Debt Laws (Amendment) Bill.

BANKING LAWS

The first Bill is of interest, as it would pave the way for the Reserve Bank of India (RBI) to issue the final guidelines for licensing of new private sector banks.

The Government has been urging the RBI to initiate the process of inviting applications for licensing of new banks, but the latter has made it clear that it would not move without the Bill being enacted by Parliament.

The Bill has provisions conferring the RBI additional regulatory and supervisory powers over banks, including that of superseding their boards.

The central bank has sought these powers mainly to ensure that banks maintain an arm’s length relationship with promoter group entities and associates, so that they don’t end up becoming captive fund pools for the latter.

The original Bill, tabled in March 2011, had also sought to keep mergers and acquisitions in the banking sector within the RBI’s — and not the Competition Commission of India’s (CCI) — purview.

This would have meant exempting combinations of banking companies from the Competition Act 2002, which gives the CCI the sole power to regulate mergers and acquisitions.

While the original Banking Laws (Amendment) Bill had specific provisions to take banking mergers out of the competition watchdog’s ambit, there has been talk also of the Government wanting to drop that exemption clause. The RBI, in turn, has fiercely opposed such a move.

Whether it is the RBI or CCI that will have the ultimate say on bank mergers and acquisitions would be clear from the final version of the Bill that gets tabled on Monday.

On Monday, Corporate Affairs Minister Sachin Pilot is also expected to introduce a Bill to amend the Competition Act, 2002.

This Bill, in fact, aims at strengthening the CCI’s powers, including extending its jurisdiction to cover all ‘voluntary’ mergers and acquisition deals and exempting no sector.

But all forced or ‘involuntary’ mergers involving ailing banks and insurance companies — a la Global Trust Bank being taken over by Oriental Bank of Commerce — would come under the ambit of the RBI and the Insurance Regulatory and Development Authority (IRDA).

The third Bill seeks to amend two Acts: the SARFESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, 2002 and the RDBF (Recovery of Debts due to Banks and Financial Institutions) Act, 1993.

These amendments would basically strengthen the regulatory and institutional framework relating to recovery of debts that are due to banks and financial institutions. These include enabling them to file caveat petitions for being heard by Debts Recovery Tribunals before they grant any stay to defaulting borrowers.

FLOOR MANAGEMENT

In the event the above Bills clear the Parliamentary hurdle, the Government will, then, focus its attention on the more tricky legislation pertaining to FDI in insurance and pension.

Currently, FDI of up to 26 per cent is allowed in insurance companies, while it is not permitted at all in the pension sector. The Union Cabinet had, in October, cleared a proposal to permit 49 per cent FDI in both, which would have to be incorporated into the IRDA and the Pension Fund Regulatory and Development Authority legislation.

The Government was able to win the vote on FDI in multi-brand retail mainly due to the support or abstention by the Bahujan Samaj Party and the Samajwadi Party.

It would now have to take a call whether to rely on these very parties or reach out to the Opposition, especially the Bharatiya Janata Party, to ensure passage of the insurance and pension Bills. How that would unfold will probably be clear by the middle of this week.

(This article was published on December 9, 2012)
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