The Rajya Sabha today approved the Banking Amendment Bill, clearing the way for the RBI to issue more banking licences and opening up the sector to more foreign investment. The clearing of the Bill by the Upper House comes two days after the Lok Sabha passed it.
The Banking Laws (Amendment) Bill, 2012, seeks to increase voting rights of investors in the private sector banks to 26 per cent from the existing ceiling of 10 per cent. This will make the Indian banking sector attractive for overseas investors and is expected to lead to consolidation in the industry. Voting rights of investors in public sector banks will be hiked to 10 per cent from the original one per cent, as per the Bill.
It also paves the way for the Reserve Bank of India to expedite the process of issuing new banking licenses. “Only a fit and proper company will get a new Bank licence,” Finance Minister P Chidambaram said in the Rajya Sabha today.
Winding up the discussion on the Bill in the House, Mr. Chidambaram said the modified legislation would help create "world size" banks in India.
"We need more banks. Yes, we are opening new branches, but that's not enough... We need two to three world size banks," said Mr. Chidambaram, adding that the new regulation would help achieve this objective.
However, the Bill will face steep implementation challenges, analysts said, given investor confidence in the banking sector is low due to high valuations in the private sector and falling earnings at their public sector counterparts.
The Reserve Bank of India is also expected to move slowly in issuing new banking licenses, analysts added.
The Banking Bill also seeks to exempt certain mergers and acquisitions in the sector, such as the takeover of a failing bank by a peer after permission from the RBI, from the purview of the Competition Commission of India (CCI). The Bill gives RBI the power to supersede bank boards as well as to inspect books of associates of banking company.
Earlier, the Bill had allowed the CCI no right in regulating banking mergers. However, the clause was then removed, giving the CCI powers to oversee mergers and acquisitions, Mr Chidambaram explained at the Upper House.
However, the RBI deputy governor D Subbarao said: "We are always uncomfortable with CCI getting more powers, but cannot say much about it to Parliament."
The government had also removed the clause that allowed banks to invest in commodity futures trade after wide-spread contention over a possible exposure to high-risk speculative trading.
With inputs from Reuters, IANS
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