Need to review, recast legislations in banking sector: RBI

Absence of a uniform law governing various lenders has led to an uneven playing field, necessitating the need to review and recast the legislations governing the banking sector, said 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 senior RBI official's recent speech here was released by the apex bank today in its website.

"A single, harmonised and uniform legislation applicable to all banks will provide transparency, comprehensiveness and clarity and provide ease of regulation and supervision to the 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 the nationalised banks, which are constituted under different statutes, are governed by their respective statutes.

The provisions relating to the ownership and management of banking companies as contained in the Banking Regulation Act are not applicable to the public sector banks, he said.

Similarly, cooperative banks are constituted by the respective state Cooperative Societies Acts and other legislations.

Regarding the issue of management of banks, Sinha said RBI currently does not have the power to supersede the Board of Directors of a banking company and amendments for conferring such a power has 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 2011 Bill proposes to confer such power on RBI. This will 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 regulation and supervision depending upon the risk to the system from entities like cooperative societies.