Banking Bill to be tabled this session

NEW BANKING LICENCES: Draft norms for new bank licences by March-end

The Reserve Bank of India (RBI) has proposed amendments to the Banking Regulation Act, 1949, Finance Minister Pranab Mukherjee said in his Budget speech on Monday. The government has decided to table the Bill during the Budget session of Parliament.

“RBI has proposed some amendments in the Banking Regulation Act. I propose to bring suitable legislative amendments in this regard in this session.”

RBI Governor D Subbarao had made a strong case for bringing in changes to the banking laws. During the annual banking event, Bancon, last year he had said: “There is a strong case for reviewing all the legislations and recasting them for a number of reasons. First, the fact that different banks are governed by different laws has created an uneven playing field and that needs to be levelled to provide for fair competition.”

Subbarao had also suggested a single, harmonised legislation that would be applicable to all banks to provide transparency, comprehensiveness and clarity. “Third, there was also a need to iron out inconsistencies between the primary laws governing the banking sector and other laws applicable to the sector.”

According to Ashvin Parekh, national leader, global financial services of Ernst & Young, one of the issues the banking regulator was considering amending was with respect to voting rights of shareholders.

Section 12 of the Banking Regulation Act contains provisions relating to regulation of paid-up capital, subscribed capital, authorised capital and voting rights of shareholders. The provisions are, however, not applicable to public sector banks and other banking institutions which are not companies. Voting rights of a shareholder in a banking company are capped at 10 per cent but voting rights of a shareholder in a public sector bank are restricted to one per cent of the total voting rights of all shareholders of the corresponding new bank.

The central bank’s request to amend the Act comes at a time when RBI is preparing draft guidelines to allow private players in the banking sector.

Mukherjee said RBI was planning to issue the guidelines for banking licences before the end of the current financial year. The central bank had put out a discussion paper on new bank licences where issues regarding entry of industrial houses in banking, minimum capital requirement and promoter’s shareholding pattern were discussed.

The pre-budget Economic Survey, which was released on Friday, proposed two types of licences for setting up banks in India — one for basic banking activity and another for full fledged banking. It said non-banking financial companies and microfinance institutions should be considered for basic banking licence.