Cabinet note on bank voting rights moved

The finance ministry has finalised and moved a Cabinet note on the amendments in Banking Act to change the voting rights in the banks. After the Cabinet approval, a Bill would be introduced in the Parliament to omit sub-section (2) in Section 12 of the Banking Regulation Act, 1949. On removal of this sub-section, the present restriction of 10 per cent (of the total voting rights) on voting right would be done away with.

The Finance Minister in his Budget speech had stated that the FDI limit in the banks are being raised from the existing 49 per cent to 74 per cent. The move is an effort to encourage foreign banks to operate in India either through their branches of their parent bank or by setting up subsidiaries. The RBI had earlier proposed that if the foreign banks are allowed to set up subsidiaries in India their shareholding must be necessarily 51 per cent or more.

However, the finance ministry felt that to encourage foreign investors in the banking sector and to facilitate foreign banks to set up subsidiaries in India, it is necessary to remove the present restriction on the voting rights of the banks.

In fact, the finance ministry had earlier felt that the amendment in the Banking Act could be carried out through the Finance Bill. However, the law ministry was of the opinion that since this amendment does not give any effect to the financial proposal of the central government, a separate bill should be moved. Taking into consideration the opinion of the law ministry, the finance ministry decided to go ahead with a separate bill on the issue. The note, approved by the law ministry, contains a draft bill of the proposed amendment. It is expected that the proposal would come up for consideration in the Cabinet shortly.