Financial sector bills to be priority agenda for new govt

The department of banking and insurance in the ministry of finance has drawn out a list of pending reforms to be submitted to Cabinet Secretary....

The department of banking and insurance in the ministry of finance has drawn out a list of pending reforms to be submitted to Cabinet Secretary KM Chandrashekhar later this month. Most of these involve legislative action and perhaps call for changes depending on the nature of the coalition at the Centre.

The Micro-finance Development and Regulation Bill,Banking Regulation (Amendment) Bill and the State Bank of India (Amendment) Bill need to be re-introduced in Parliament once the new government assumes power. The Insurance Development and Regulation Bill may,however,retain its original form. The UPA government introduced it in the Rajya Sabha last December to prevent it from lapsing.

All these bills hold great significance and take forward India’s unilateral commitment to pursuing financial sector reforms.

The Micro-finance Development and Regulation Bill seeks to facilitate universal access to integrated financial services in rural and urban areas that lack banking facilities. It also seeks to regulate micro finance organisations (MFO) that are not regulated. It also aims to bring under its purview societies,trusts and cooperatives.

The Banking Regulation (Amendment) Bill 2005 seeks to amend the Banking Regulation Act,1949. The NDA government had originally proposed to amend this Act such that the government holding in banks can be pared to 33 per cent. This was revised by the UPA to 51 per cent.

In addition,the bill,as introduced by the UPA,proposes to bring changes to help regulate acquisition of shares in banking companies,increase flexibility on the Statutory Liquidity Requirement (SLR),include preference shares as capital,allow banks to lend to companies in which their directors are engaged,monitor the activities of associate enterprises of banks,to vest more powers with the Reserve Bank of India to supersede the board of directors of a bank,disallow primary credit societies from banking activities and change the definition of approved securities.

The Insurance (Amendment) Bill seeks to amend the Insurance Act 1938,General Insurance Business Act,1972,and Insurance Regulatory and Development Authority Act,1999. It proposes to raise the foreign direct investment limit in insurance companies from 26 to 49 per cent,give more power to the regulator (Insurance Regulatory and Development Authority),allow companies to raise newer capital through instruments on the pattern of banks,lower capital requirement of standalone health insurance companies to Rs 50 crore from Rs 100 crore,allow foreign reinsurers to open branches in India,and also set up Life Insurance Council and General Insurance Council as self-regulatory bodies.

Story continues below this ad

As far as the State Bank of India (Amendment) Bill,2006 is concerned,it seeks to amend the State Bank of India (SBI) Act,1955 (Principal Act). The amendment will allow the bank to issue preference and bonus shares. Besides,it also proposes to reduce the government shareholding in the bank from 55 per cent to 51 per cent. The changes proposed will also increase the authorised capital of SBI to Rs 5,000 crore.

The bill proposes to restrict the voting rights of preference shareholders of the SBI and allow the Central government to appoint up to four managing directors in consultation with RBI. The central government is given the power to supersede the central board in certain cases on the recommendations of RBI,and to appoint an interim administrator.