The government has finally given its approval to the long-pending Banking Laws Amendment Bill that seeks to align the voting rights of foreign shareholders in banks to their equity holdings.The Bill, which was approved by the Union Cabinet on Thursday, will now be tabled in Parliament. The Bill once approved in Parliament would also allow an individual or institution to hold more than 5% stake in a bank after Reserve Bank of India (RBI) approval.
In his budget speech on Monday, finance minister Pranab Mukherjee had made a strong pitch for financial sector reforms, promising to push ahead with major legislations including the politically contentious insurance and pension legislations.
Mukherjee said he proposed to move forward with various legislations including Insurance Laws (Amendment) Bill, 2008; The Life Insurance Corporation (Amendment) Bill, 2009, Banking Laws Amendment Bill, 2011, the revised Pension Fund Regulatory Development Authority Bill, Bill on Factoring and Assignment of Receivables, the State Bank of India (Subsidiary Banks Law) Amendment Bill.
The Section 12 of the Banking Regulation Act contains provisions relating to regulation of paid-up capital, subscribed capital, authorised capital and voting rights of shareholders. The provisions are, however, not applicable to public sector banks and other banking institutions, which are not companies.
At present, voting rights of a shareholder in a banking company are capped at 10% but voting rights of a shareholder in a public sector bank are restricted to 1% of the total voting rights of all shareholders of the corresponding new bank.
The RBI’s request to amend the Act comes at a time when the central bank is preparing draft guidelines to allow private players in the banking sector.
The RBI currently does not have the power to dismiss a bank board, but under section 45 of the Banking Regulation Act, 1949, it can force amalgamation or merger of a bank with another, and force a reconstruction of the board to protect the interests of depositors, shareholders and employees.
A financial sector legislative reforms commission headed by Justice BN Srikrishna is streamlining all financial sector laws.
“It would rewrite and streamline financial sector regulations and bring them in harmony with the requirements of a modern financial sector. The commission will complete its work in 24 months,” Mukherjee said.