Amended Banking Laws bill placed before cabinet

Following up on the promise made in this year's budget speech, the finance ministry today reportedly put a proposed Banking Laws (Amendment) Bill before the union cabinet today.

This bill seeks to address the capital raising capacity of banks and strengthen the regulatory powers of the Reserve Bank of India. After cabinet approval, the bill will be introduced in the current session of Parliament. 

Finance minister Pranab Mukherjee, in his budget speech, had said the UPA government was committed to taking financial sector reforms further.

He said the government planned to make a move on the Insurance Laws (Amendment) Bill 2008, Life Insurance Corporation (Amendment) bill 2009, the revised Pension Fund Regulatory and Development Authority Bill, first introduced in 2005 and the Banking Laws (Amendment) Bill, among others. 

Commercial banks, especially those in the private sector, are likely to get a boost with government reviving plans to increase their voting rights through changes in the law. The bill will give shareholders voting rights in proportion to their holding. 

As of now, the voting rights of shareholders in a PSU bank is limited to 1 per cent of their holding, while in the case of private banks, it is 10 per cent. Many banks and investors have been demanding these changes for a long time now. 

However, there was resistance from the RBI on grounds that an entity or an individual would corner a chunk of shares in the bank without regulatory approval. The RBI restricts bulk purchases now, but that is only in the form of a directive. To prevent this, the bill has proposed that an individual or entity cannot hold more than 5 per cent stake in a bank without the RBI's approval.