Banking amendment bill cleared by Lok Sabha

Replying to a debate in the lower house of Parliament, Finance Minister P. Chidambaram said the regulations needed to be modified to help create "world class" and "world size" banks in India.

"We need at least two-three world class banks... none of our banks is among the world's 20 top banks," Chidambaram said.

The Banking Laws (Amendment) Bill, 2011 will now be taken up for discussion and voting in the Rajya Sabha, the upper house of the Indian parliament, Thursday.

The new regulation increases voting rights of investors in the private sector banks to 26 percent from the existing 10 percent. This will make the Indian banking sector attractive for the overseas investors and is expected to lead to consolidation in the industry.

The new regulation will enable the Reserve Bank of India (RBI) to issue new bank licences, which will help in increasing penetration of banking in the country.

The principal opposition Bharatiya Janata Party (BJP) supported the bill after the government dropped a controversial clause allowing banks to trade in commodity futures.

"Since the bill is too important for me to pass, therefore I am bringing the bill dropping the controversial clauses," Chidambaram said while winding up discussion on the bill in the Lok Sabha.

The bill is likely to be cleared the Rajya Sabha Thursday as the two biggest political parties - Congress and BJP - are supporting it.

Chidambaram said major recommendations of the standing committee of Parliament and the RBI's working group have been incorporated in the bill.

The new regulation also seeks to bring the banking sector under the competition commission purview.

Chidambaram said while the RBI would regulate the banking sector, the Competition Commission of India (CCI) would look into competition practices in the banking sector.