Cabinet clears banking bill on more voting rights to shareholders

The union cabinet on Thursday cleared a key legislation for raising voting rights of shareholders in private banks to 26 per cent from 10 per cent; and in public sector banks from 1 per cent to 10 per cent.

The much-anticipated banking sector reform will help the government fight the notion that a paralysis in policy-making is holding up the country's development. It is also expected to attract more foreign direct investment in the banking sector. Foreign investors have so far shied away from the sector as they would have no say in the management.

''The cabinet has cleared the banking laws (amendment) bill, 2011. It also approved increase of voting rights from 10 per cent to 26 per cent for private sector banks,'' information & broadcasting minister Ambika Soni told reporters after the cabinet meeting.

The government was initially keen to allow voting rights in proportion to the investment of each shareholder, but the parliamentary standing committee on finance objected to this. The committee, headed by Bharatiya Janata Party leader and former finance minister Yashwant Sinha, had insisted on a ceiling of 26 per cent on the voting rights of foreign investors.

While the recommendations of the standing committee are not binding on the government, the ruling United Progressive Alliance does not have the numbers in Parliament to push through a legislation, particularly when partners in the Congress-led coalition also oppose it; as they frequently do.
 
The revised bill will be introduced in Parliament's current session. The diluted bill is expected to sail through; as it has accepted almost all the BJP's amendments. Coalition partners like the fractious Mamata Banerjee of the Trinamool Congress are also unlikely to oppose a bill that has no immediate emotive or popularist ramifications.

The BJP leadership has already indicated that the party would not oppose the pension fund regulatory and development authority bill, 2011,   which has also been introduced in the Lok Sabha and is under the finance committee's scrutiny.

The third key reform in the financial sector is with regard to allowing greater foreign investment in insurance. The insurance (amendment) bill however may not be so easy to pass as the other two.