Money & Banking

Banking Bill to balance voting rights with RBI restriction

Our Bureau Mumbai | Updated on November 13, 2017

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The Banking Laws (Amendment) Bill balances the need of promoters of private banks to enjoy voting rights in proportion to their shareholding with a key restriction entailing the banking regulator's approval for acquisition of five per cent or more of a bank's paid-up capital, say banking experts.

The Bill was approved by the Union Cabinet on Thursday even as the RBI is expected to finalise its guidelines on the entry of new banks in the private sector by March-end.

“Given that the earlier experience with individuals floating banks has not been good, the central bank may allow industrial houses to promote banks with adequate restrictions. A promoter will be willing to stump up, say, Rs 1,000 crore as capital to float a private sector bank only if the 10 per cent cap on voting rights is not there. Otherwise, there is no incentive to put in the money,” said Mr V Sriram, Head – Corporate & Banking Consulting, ICRA.

Once the Banking Laws (Amendment) Bill is passed by the Parliament, it will pave the way for issuing new bank licences by the Reserve Bank of India.

The relaxation in voting rights by the Government could go hand-in-hand with the RBI possibly prescribing a higher capital threshold for setting up new private sector banks, said Mr M. R. Umarji, Chief Legal Adviser, Indian Banks' Association. The central bank will also ensure that there is no concentration of ownership so that depositors' interests are protected.

Published on March 03, 2011

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