The Union Cabinet has given the go-ahead for raising voting rights of shareholders in private banks to 26 per cent from 10 per cent, information and broadcasting minister Ambika Soni said on Thursday.
The move is expected to
attract more foreign direct investment (FDI) in the banking sector and give the muchneeded push to the economic reforms process, which has been stalled in the wake of a
policy paralysis in the government following a spate of corruption scandals.
"The Cabinet has cleared
Banking Laws (Amendment Bill 2011) . It also approved increase of voting rights from 10 per cent to 26 per cent for private sector banks," Soni told reporters after the Cabinet meeting.
Foreign investors were till now reluctant to invest in Indian banks as they did not have an adequate say in the management due to the 10 per cent cap on voting rights for foreigners.
The government was initially keen to allow voting rights in proportion to the investment of each shareholder, but the banking laws amendment Bill had got held up with the parliamentary standing committee objecting to the move.
The committee, headed by Bharatiya Janata Party (BJP) leader and former finance minister Yashwant Sinha, had insisted that a ceiling of 26 per cent on the voting rights of foreign investors should be kept to ensure Indian control over the banks.
While the recommendations of the standing committee are not binding on the government, the United Progressive Alliance (UPA) does not have the
required numbers in Parliament to push through the legislation.
The government has, therefore, been forced to play along with the standing committee's recommendation in order to get the Bill cleared.
The BJP leadership has already indicated that the party would not come in the way of Pension Fund Regulatory and Development Authority Bill, 2011.
Now, with the government towing a conservative line, the Banking Laws (Amendment) Bill 2011 is also expected to sail through. The Bill, introduced in the Lok Sabha in March 2011, had proposed providing voting rights to investors commensurate with their shareholding in the private sector banks.
The Cabinet has now approved changes in the proposed the Banking Laws (Amendment) Bill 2011.
In December last year, the Parliamentary Standing on Finance had recommended raising voting rights of investors in the private sector banks but with a cap of 26 per cent with a view to maintaining a balance between economic control and promoting corporate democracy. At present, the voting right is capped at 10 per cent irrespective of the share holding in the private sector banks.
The standing committee in its report on the Banking Laws (Amendment) Bill 2011 had suggested that the Reserve Bank of India (RBI) must ensure that regulatory mechanism is adequate and strictly complied with to prevent any misuse of the provision of increasing the limit.
It had also recommended that RBI, being the nodal agency in the banking sector, should conduct due diligence of fit and proper persons/ entities.
CASH IN ON BANKING LAWS
> The Union Cabinet has given the go-ahead for raising voting rights of shareholders in private banks to 26 pc from 10 pc
> The move is expected to attract more foreign direct investment in the banking sector and give the much-needed push to the economic reforms process
> Foreign investors were till now reluctant to invest in Indian banks as they did not have an adequate say in the management due to the 10 pc cap on voting rights for foreigners
Courtesy: Mail Today 
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