Need to review banking sector legislation: RBI

The absence of a uniform law for various lenders has led to an uneven playing field, necessitating the need to review and recast legislations governing the banking sector, according to the Reserve Bank of India (RBI).

Speaking at the 'Financial Planning Congress 2011' here, RBI deputy governor Anand Sinha said each of the statutes was crafted in a contemporaneous setting, reflecting the needs and concerns of the time.

"Since the origins of the banks have been historically different, they continue to be governed by the respective statutes, as well as other general laws....However, the fact that different banks are governed by different laws has resulted in an uneven playing field which needs to be addressed," he said. The deputy governor's recent speech was released by the apex bank on Monday in its website.

"A single, harmonised and uniform legislation applicable to all banks would provide transparency, comprehensiveness and clarity and provide ease of regulation and supervision to RBI....There is also a need to sort out the conflicts and overlaps between the primary laws governing the banking sector and other applicable laws," Sinha said. Banks are regulated and supervised under the Banking Regulation Act, 1949. Public sector banks like the State Bank of India (SBI), SBI's subsidiary banks and nationalised banks, which are constituted under different statutes, are governed by their respective statutes.

Provisions relating to the ownership and management of banking companies, as contained in the Banking Regulation Act, are not applicable to public sector banks, Sinha said. Similarly, cooperative banks are constituted by the respective state cooperative societies Acts and other legislations.

On the management of banks, Sinha said RBI does not have the power to supersede the board of directors of a banking company and amendments for conferring such a power had been proposed in the Banking Laws Amendment Bill, 2011, which is now before Parliament. "RBI should have the power to direct, by order, at any time that persons who are not fit and proper to hold equity or voting power in contravention of....provisions shall not have voting power. The Bill proposes to confer such power on RBI. This would help prevent unscrupulous persons from exercising control over banks," Sinha said. He said RBI should have the discretion to determine the level and intensity of the regulation and supervision, depending on the risk to the system from entities like cooperative societies.