In a major financial sector reform, the government on Friday introduced in the Lok Sabha two major banking legislations, including one to lift 10 per cent cap on voting rights to foreign banks acquiring equity in Indian banks.
The long-awaited Banking Regulation (Amendment) bill, introduced by Finance Minister P Chidambaram, however, puts a rider that any person acquiring more than 5 per cent equity in an Indian bank will have to obtain prior approval from the Reserve Bank of India.
The second legislation, piloted by Chidambaram, is to amend the Reserve Bank of India Act to provide more operational flexibility to the central bank to set Cash Reserve Ratio.
The Reserve Bank of India (Amendment) bill also empowers to deal in derivatives, to lend or borrow securities and to undertake repo or reverse repos, the other monetary instruments used to deal with excess or inadequate liquidity.
Both legislations were referred to Parliamentary Standing Committee on Finance after they were introduced in the House.
According to statement of objects and reasons, the amendements to Banking Regulation Act also provides for Reserve Bank to specify acquisition of a minimum percentage of shares in a banking company if it considered necessary.
The bill also seeks to empower RBI to specify Statutory Liquidity Ratio without any floor or ceiling to give more operational flexibility. The present restriction on lending to directors and companies of firms in which the directors are interested is posing a difficulty to banks in appointing independent directors.
The Bill, therefore, proposed more teeth to the central bank to grant exemption to banking company in appropriate cases.
The legislation seeks to empower the Central Bank to supersede the board of directors of bank and appoint an administrator to manage the bank till alternate arrangements were made when a banks board functions in a manner detrimental to interest of depositors.