Lok Sabha passes Banking Regulation Bill

Mumbai: Lok Sabha has approved the Banking Regulation (Amendment) Bill, which seeks to give more operational flexibility to the Reserve Bank of India in the conduct of monetary policy.

The bill, which replaces an ordinance promulgated on 23 January, seeks to amend section 24 of the Banking Regulation Act, 1949 to enable the RBI to specify the statutory liquidity ratio without any floor limit.

The regulator needed to have flexibility in this regard for managing liquidity in the system. As such the existing floor limit of 25 per cent has to be removed, keeping intact the ceiling of 40 per cent as the guidance from RBI, finance minister P Chidambaram said.

"In the context of developments in the banking and finance sector and soaring demand for credit, it was no longer necessary to continue the existing floor limit of 25 per cent in the statute itself," the finance minister said

"It is necessary that RBI as the regulator and the authority vested with powers to conduct monetary policy have the necessary flexibility regarding stipulation of holding of liquid instruments by banks," he added.

Chidambaram said the proposal to remove the floor limit on SLR had received unanimous recommendation of the parliamentary standing committee on finance.

Changes proposed in section 53 of the Act will make it mandatory to present draft notification before both houses of Parliament in cases of exemptions being granted to institutions, banks or branches located in special economic zones (SEZs).

The finance minister said it had become necessary to carry out urgently required amendments in the Banking Regulation Act, 1949 as there was a lurking fear that the changing financial scenario may adversely impact the smooth functioning of the banking system.