| Big push to bank reforms demanded | |
| BS Reporter / New Delhi July 3, 2009, 0:43 IST | |
Aligning voting rights with equity holdings, higher public holding suggested.
Taking forward the financial sector reforms agenda, the Economic Survey today favoured aligning voting rights in banks with equity holdings and greater public holding in state-owned banks.
At present, voting rights are capped at 10 per cent, irrespective of how much stake an investor holds in a bank.
The survey suggested passage of the Banking Regulation (Amendment) Bill, 2005, which aims to remove the 10 per cent cap on voting rights.
It also sought greater public participation in public sector banks. This should be done within the policy of “retaining social control of management”.
Bankers said this could perhaps be a hint for allowing the government to hold less than 51 per cent stake in public sector banks while retaining management control. At present, regulations require the government to hold at least 51 per cent in PSBs.
Besides ensuring greater public participation in ownership, it will help banks in which the government’s stake is close to 51 per cent to raise extra equity capital to support business growth.
In the absence of fresh capital, these banks will find it tough to maintain higher capital adequacy ratio and run the risk of becoming marginal players.
The National Democratic Alliance government had floated the idea for the government to hold only a 33 per cent stake in banks.
The Survey suggested phased increase in the foreign direct investment limits in banks and greater entry of foreign banks, but with tighter regulation. At present foreign investment in Indian private sector banks is capped at 74 per cent.
The Survey also favoured allowing trading of directed credit obligations among banks and other financial institutions.
This will allow and encourage the development of financial institutions that can specialise in and exploit economies of scale and scope in unbanked/low banked areas and sectors.
It also suggested linking of small savings rates to government debt instruments or bank deposit rates of similar maturity.
This suggestion, if accepted, would provide a level playing field to banks and perhaps improve their ability to attract low cost funds, analysts said.
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