The Indian government has begun
its process of expediting banking sector reforms
with the introduction of two new and important
legislations in this sector. The first has been
the long-awaited Banking Regulation (Amendment)
Bill, introduced by Finance Minister P Chidambaram.
The main reform introduced through this Bill is
the removal of a 10 % cap on the voting rights
of overseas investors in non-government banks.
It is interesting to note however that this amendment
puts a rider that any person acquiring more than
5 % equity in an Indian bank will have to obtain
prior approval from the Reserve Bank of India
(RBI). According to statement of objects and reasons,
the amendments to the Banking Regulation Act also
provides for the RBI to specify acquisition of
a minimum percentage of shares in a banking company
if it considered necessary.
The second legislation, piloted
by Chidambaram, is to amend the Reserve Bank of
India Act to provide more operational flexibility
to the central bank to set Cash Reserve Ratio.
The Reserve Bank of India (Amendment) Bill also
empowers to deal in derivatives, to lend or borrow
securities and to undertake repo or reverse repos,
the other monetary instruments used to deal with
excess or inadequate liquidity. The Bill also
seeks to empower RBI to specify Statutory Liquidity
Ratio without any floor or ceiling to give more
operational flexibility.
Our Say |
 |
| India
has been seeking to attract overseas
investment to the nation's 31 non-state
banks, many of which are constrained
by capital shortages and limited geographical
reach and need money to compete with
bigger rivals, including the private-sector
leader, ICICI Bank, and 27 state-owned
lenders. Private banks typically have
about 200 branches and are attractive
to overseas lenders seeking to tap
rising demand for personal loans,
mortgages and credit cards in India
Foreign banks had cited the 10 % cap
as a disincentive to investment in
local banks and have demanded voting
rights commensurate with ownership.
That has hampered government attempts
to strengthen a banking industry with
fewer assets than China's largest
lender, Industrial and Commercial
Bank of China.
These are much needed reforms that
will improve sentiment and will improve
the confidence of an investor or a
bank looking at India
The amendment to the Reserve Bank
of India Act will give the Central
Bank flexibility in fixing the reserve
requirements of commercial banks.
|
|
