Banking Laws Amendment Bill: Revising Checks And Balances
DSIJ Intelligence / 06 Dec 2012
The Banking Laws Amendment Bill 2011 was introduced in the Lok Sabha way back on March 22, 2011, when Pranab Mukherjee was the Finance Minister, and was soon referred to the Standing Committee on March 29, 2011. The Standing Committee took its own sweet time to review the bill, and finally came back with its report on December 13, 2011. It has almost been a year since then, and the Parliament has yet to give its nod to the bill.
With the UPA’s win on the multi-brand retail FDI front in the Lok Sabha on December 5 (which will most likely be replicated in the Rajya Sabha), it seems that the other pending bills will also see light of day. The Banking Laws Amendment Bill, 2012 is one among the many that are slated to be passed in the current session of Parliament.
So, what will the passage of this bill into an act mean for the banking sector? The bill aims to strengthen the regulatory powers of the Reserve Bank of India (RBI) and address the issue of the capital raising capacity of banks – changes that would strengthen the already resilient Indian banking sector. Here are a few starting pointers as to what can be expected from all this:
1. The amended bill will remove the ceiling of Rs 3000 crore on the amount of authorised capital that nationalised banks must hold. The approval to increase or decrease the authorised capital will have to be taken from the Central Government and the RBI. This move will help banks to enhance their capital by seeking appropriate approvals according to the need they face. An analysis of the authorised and issued capital of listed banks shows that the issued and subscribed capital of most of the PSBs is less than Rs 1000 crore, including that of SBI, which has issued capital of just Rs 671 crore.
2. The amended bill also states that nationalised banks will be allowed to issue bonus and rights shares without the explicit approval of the RBI and the government. This step lends them a whole lot of functional autonomy at the operational level, and provides them great relief in terms of capital infusion going ahead.
3. The existing Competition Act, 2002 has bestowed the Competition Commission of India with the power to regulate mergers and acquisitions. The bill proposes to exempt combinations of banking companies from the purview of this act, and they can go ahead after seeking the requisite permission from the RBI.
4. The bill raises the ceiling on the voting rights of shareholders of nationalised banks from the present 1% to 10%. It also removes the collective restrictions on voting rights currently limited to 10% of the total voting rights of all the shareholders of banking companies.
All in all, the Banking Laws Amendment Bill, 2011 seems set to change the banking sphere for the better. The market is likely react to any positive development on this front, and the stocks of banking companies are likely to remain in good demand if the bill gets approval.
With the UPA’s win on the multi-brand retail FDI front in the Lok Sabha on December 5 (which will most likely be replicated in the Rajya Sabha), it seems that the other pending bills will also see light of day. The Banking Laws Amendment Bill, 2012 is one among the many that are slated to be passed in the current session of Parliament.
So, what will the passage of this bill into an act mean for the banking sector? The bill aims to strengthen the regulatory powers of the Reserve Bank of India (RBI) and address the issue of the capital raising capacity of banks – changes that would strengthen the already resilient Indian banking sector. Here are a few starting pointers as to what can be expected from all this:
1. The amended bill will remove the ceiling of Rs 3000 crore on the amount of authorised capital that nationalised banks must hold. The approval to increase or decrease the authorised capital will have to be taken from the Central Government and the RBI. This move will help banks to enhance their capital by seeking appropriate approvals according to the need they face. An analysis of the authorised and issued capital of listed banks shows that the issued and subscribed capital of most of the PSBs is less than Rs 1000 crore, including that of SBI, which has issued capital of just Rs 671 crore.
2. The amended bill also states that nationalised banks will be allowed to issue bonus and rights shares without the explicit approval of the RBI and the government. This step lends them a whole lot of functional autonomy at the operational level, and provides them great relief in terms of capital infusion going ahead.
3. The existing Competition Act, 2002 has bestowed the Competition Commission of India with the power to regulate mergers and acquisitions. The bill proposes to exempt combinations of banking companies from the purview of this act, and they can go ahead after seeking the requisite permission from the RBI.
4. The bill raises the ceiling on the voting rights of shareholders of nationalised banks from the present 1% to 10%. It also removes the collective restrictions on voting rights currently limited to 10% of the total voting rights of all the shareholders of banking companies.
All in all, the Banking Laws Amendment Bill, 2011 seems set to change the banking sphere for the better. The market is likely react to any positive development on this front, and the stocks of banking companies are likely to remain in good demand if the bill gets approval.
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