Financial Daily from THE HINDU group of publications
Wednesday, Dec 14, 2005
Financial Daily from THE HINDU group of publications Wednesday, Dec 14, 2005 |
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Private Banks Money & Banking - Financial Policy Parliament panel gives nod to lift voting right cap in private banks — Banks also allowed to issue preference shares Our Bureau
New Delhi , Dec. 13 SIGNALLING a fresh round of liberalisation in the banking sector, a Parliamentary Standing Committee has given its go-ahead to remove the 10 per cent voting right cap on shareholders of private sector banks thereby paving the way for permitting proportionate voting rights to shareholders. "Allowing proportionate voting rights to shareholders would provide greater opportunities for investors," the Standing Committee on Finance that has examined the Banking Regulation (Amendment) Bill, 2005, has said. No alteration for PSBs: The move, however, would not alter voting right in public sector banks since the Government-owned banks are governed by the provisions of Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and 1980 and the SBI Act, 1955 and SBI (Subsidiary Banks) Act, 1959. The committee has pointed out that in its earlier report on the Banking Regulation Amendment Bill, 2003, it had given a similar opinion on lifting the voting right cap. Reiterating its suggestion, the panel has pointed out that in its earlier report it had observed "the move would pave way for a process of consolidation in Indian private banks and also lead to setting up subsidiaries of foreign banks." However, the committee has said "the Reserve Bank of India would ensure that the legal and regulatory mechanism is adequate and complied with strictly so that no scope is left for possible misuse of the provisions." RBI checks: The panel has said that checks that the RBI would have in hand would come through the separate amendments being proposed to specify that the central bank's prior approval would be required to acquire more than 5 per cent holding in a private bank. Pref shares: In a separate recommendation, the committee has also given its green signal to permit banks to issue preference shares. The panel has, however, put the rider that the RBI should lay down clear guidelines on the extent to which the banks would be allowed to issue such shares. "Issue of preference shares would be beneficial to the banks in raising the required capital to support the expected credit growth," it said. However, it has held that "the fact that the extent or limit to which a banking company may raise capital by way of issue of preference shares - perpetual or irredeemable and redeemable - would be specified by the RBI." The Government had told the committee, which was looking into the Banking Regulation Amendment Bill, 2005, that the proposal under consideration was to allow issue of perpetual or irredeemable and redeemable share with provisions for conversion of such shares into equity shares.
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