No deemed nod for bank stake over 5%

The revised Banking Regulation (Amendment) Bill proposes to abandon the concept of deemed approval to entities hiking their stake above 5 per cent in a bank.

The Bill also seeks to do away with the concept of an administrator in case the board of a bank is superseded by the government.

"The Reserve Bank will have to provide intimation within 90 days specifying whether the hike in stake meets its approval. There would be no deemed approval," an official said.

It was felt that the onus should be on the Reserve Bank to clearly spell out whether an approval had been granted. The earlier Bill, introduced in May 2005, had provided for deemed approval after 90 days in order to cut red tape.

The revised Bill, to be introduced in Parliament, proposes that the government will form a committee and appoint a chairperson from amongst its members in case it has superseded the board of the bank.

The earlier Bill had provided for an administrator to be appointed by the RBI. The post of chairperson would not be restricted for government officials.

Instead, he would have to be a person of standing, having knowledge and experience in banking, finance, economics, law, accountancy, administration or any other discipline which the government thinks would be useful to a bank.

Status quo is set to continue on provisions relating to loans to directors, in keeping with the parliamentary standing committee on finance's recommendation to strengthen safeguards relating to bank management.

Bankers had lobbied for an amendment to section 20 of the Banking Regulation Act, 1949, to allow the management of a bank sanction loans to directors or any firm or company in which a director held a position or had substantial interest.

The Bill will empower the RBI to bring under its scanner associate entities of banks, keeping in view the fact that banks were engaging in multiple activities and had interest in several companies.

The Bill seeks to do away with the cap on voting rights and limit ownership to 5 per cent of holding by a single entity.