Education

Voting rights in pvt banks

S. Murlidharan  | Updated on February 06, 2011 Published on February 06, 2011

There are reports that the government is set to lift the cap of 10% voting rights in private banks. Would this be a good move?

Prema Ramachandran, Chennai

That voting clout should be proportionate to one’s shareholding is the cornerstone of corporate democracy and to this extent the extant norm of restricting voting rights to 10% no matter a person has got higher stakes is antediluvian though the RBI had compelling reasons to do so when the norm was installed. Right now a promoter can subscribe to as much as 40% of the equity but has to contend himself with 10% voting power. To be sure, he is required to bring down his capital stakes to accord with his voting power within the prescribed time but that is neither here nor there because of the exemption clause that allows one to continue with higher capital stake. There must be other means found to address the danger of concentration of power like restrictions on lending to group companies and knocking at the doors of the Competition Commission assuming the turf war between the RBI and Competition Commission is resolved.



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Published on February 06, 2011
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