Lok Sabha paves way for setting up more banks

Parliament on Thursday paved the way for corporate houses to enter the banking sector by approving the banking bill, a key reform legislation pending for long.

Parliament on Thursday paved the way for corporate houses to enter the banking sector by approving the banking bill, a key reform legislation pending for long.

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Parliament also passed the amendments to the debt recovery laws or Sarfesi law after a reply by finance minister P Chidambaram on the combined discussion on the two bills in Rajya Sabha.

These two Bills -- Banking Laws (Amendment) Bill, 2012, and Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2012, -- he said, will strengthen the financial sector and help in establishing large-sized banks, besides promoting financial inclusion.

"We need 2-3 world-sized banks. China has three among the world's top 20. We have none. We need more banks," he said. "Banks have opened 6,489 branches in 2011-12 alone, that is around 18-19 per day. We don't have the capacity to open more branch. We need banks," he said.

The Lok Sabha had already passed these two Bills. Chidambaram said the amendment was not intended to give banking licences to big corporate houses alone, but also to allow eligible public sector entities to enter the sector.

"I don't know why they should go on strike. There is no longer greater public support for this (kind of) strike...I think any matter can be talked out. We are open to talks. Strike is not desirable," Chidambaram said pointing out that strikes have become "less and less frequent." The Banking Laws (Amendment) Bill, 2012, which seeks to strengthen banking regulation, was passed by the voice vote in the Upper House.

The bill will allow RBI to supersede boards of private sector banks and increase the cap on voting rights of private investors in PSBs to 10 per cent, from one per cent now. Responding to queries by members, he said the government does not have any intention "at this point" to look for a new regulator alongside RBI. The central bank wanted the government to amend banking laws before initiating the process of issuing new banking licences. The passage of the bill will prompt RBI to move ahead with the proposal of granting new licence.

The bill will keep banking merger and acquisitions under the purview of the Competition Commission of India (CCI) as well, Chidambaram said. The bill, along with proposed legislations on pension and insurance, was one of the five key reforms measures on the government's agenda during the current session of Parliament.

The debt recovery bill is aimed at facilitating recovery of loans by banks. At present, there are 14 Asset Reconstruction Companies (ARCs) in the country. As many as 64,000 cases are pending before the Debt Recovery Tribunal (DRT).