Govt cautious on reforms in banking sector

With the global financial crisis spreading its wings all across the globe, the UPA government is likely to take cautious steps before going in for big ticket reforms in the banking sector even as the Left parties have little role to play at this juncture. Mahua Venkatesh reports.

With the global financial crisis spreading its wings all across the globe, the UPA government is likely to take cautious steps before going in for big ticket reforms in the banking sector even as the Left parties have little role to play at this juncture.

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Sources within the government said that certain reforms like amendment of Banking Regulation Act, which would align voting rights for foreign stakeholders in Indian private banks to their shareholding pattern, would be taken up now. But other reforms like bringing down government holding in public sector banks to less than 51 per cent, which is the current stipulated level, will take some time.

Several committees, including the Narasimham Committee, have recommended that the government stake should be lower than the current stipulated level. The committee on financial sector assessment headed by Rakesh Mohan, deputy governor, Reserve Bank of India, has also emphasised the same in its recently published report.

“The government is not in any hurry to push banking reforms especially in the wake of the financial crisis,” a senior government official said.

Aligning voting rights to the shareholding pattern of the foreign players in private banks here would not make any significant difference as raising stake above 5 per cent by any entity would require prior approval of the Reserve Bank of India.

The government, however, is planning to take up the State Bank of India Amendment Bill which will allow government’s stake to fall to 51 per cent. The government currently owns 59.6 per cent in the bank.

The trade unions have already said that they would go on indefinite strikes in case the government decides to go ahead with reforms. “We will not allow any major reform to take place in the banking sector and if the government decides to go ahead with it, we will have no option but to go on strikes,” said CH Venkatachalam, general secretary, All India Bank Employees’ Association.