Avenue opened for allowing preference share issue to shore up capital

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The Bill

received Lok Sabha approval today after the Government introduced 37 amendments.

Banks

may also be allowed to issue equity shares through preferential allotment or private placement route.

New Delhi, Aug. 23

The Government has decided that Reserve Bank of India nominee would continue to remain on public sector bank boards.

Allaying apprehensions in certain quarters that the RBI nominee in such boards may be eased out through legislative changes, the Finance Minister, Mr P. Chidambaram, pointed out that "an additional amendment" has been made in the Banking Companies (acquisition and transfer of undertakings) and Financial Institutions Laws (amendment) Bill 2005 to ensure that a RBI nominee continues to remain on the board of public sector banks.

This Bill received the Lok Sabha approval today after the Government introduced 37 amendments.

Meanwhile, public sector banks would soon get a new window to shore up their capital to meet the fast-expanding credit needs in the economy.

An avenue has been opened for such banks to raise capital through issuance of preference shares by a public issue or preferential allotment or private placement route.

Also, these banks may also be allowed to issue equity shares through preferential allotment or private placement route. An enabling amendment has been introduced in the Banking Companies Bill.

The proposed move to allow public sector banks to issue preference shares comes close on the heels of the Government and the RBI's efforts to facilitate such banks to raise capital through newer instruments for meeting credit needs.

Public sector banks have already been permitted to use hybrid instruments (such as upper tier-II bonds) and innovative perpetual debt.

The amendments also stipulate that a preference shareholder would have a right to vote only on resolutions that directly affects the rights attached to his preference share.

Moreover, a preference shareholder would not be entitled to exercise voting rights in excess of one per cent of the total voting rights of all preference shareholders.

(This article was published in the Business Line print edition dated August 24, 2006)
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