As an embattled government fights criticism for its decision to allow 51% foreign direct investment (FDI) in multi-brand retail, the parliamentary standing committee on dinance will on Thursday finalise its reports on two other politically contentious legislations: the Insurance (Amendment) Bill and the Banking Laws (Amendment) Bill.
The Insurance Amendment Bill, which was introduced in the Rajya Sabha in October 2008, seeks to enhance the cap on foreign direct investment (FDI) in private insurers to 49% from 26%.
The Bill, as introduced in Parliament, does not split this between foreign portfolio investors (foreign institutional investors, or FIIs) and others. It also removes the need for Indian promoters to dilute a part of their holding 10 years after a firm starts operations, added an official, who didn’t want to be named.
The Communist parties, which supported the UPA government in the last term, have been against several insurance reforms including raising the ceiling on FDI to 49%. Among other key provisions of the insurance amendment Bill is one that allows the four state-owned general insurance firms to raise more capital. The government of the day would have to take a policy call on dilution of stake when any of the four wants to raise capital.
Later this week or early next week, the standing committee headed by former finance minister and BJP leader Yashwant Sinha, sources said, will present its reports to Parliament recommending amendments in both the Bills.
The Banking Laws (Amendment) Bill seeks to empower RBI to dismiss a bank’s board and force its reconstruction to protect the interests of depositors, shareholders and employees. It will allow RBI to seek details of associate enterprises of banking companies.
Several members of the committee have suggested an “auction” method in addition to other stringent norms for allowing industrial houses to set up banks to ensure that only those with deep pockets and serious intent are allowed entry into the banking space.
In the draft guidelines, which has been put up for public debate, the RBI has specified a wide range of conditions, including a minimum networth of R500 crore, for companies to be eligible setting up banks in India.