Key reforms Bill on banking laws clears LS, govt drops clauses

Paving the way for large-scale reform in the banking sector, Lok Sabha on Tuesday passed the landmark Banking Laws (Amendment) Bill after Finance Minister P Chidambaram gave in to opposition demands to drop clauses that would have allowed banks to participate in futures trading in the commodities market.

Chidambaram said he was agreeing to drop the "controversial clauses" as the Bill was "too important" for him and needed to be passed. "India requires world-size banks. This Bill will help enable that. Of the top 20 biggest banks in the world, not a single one is from India," he said while concluding the discussion on the Bill.

The Bill has been seen as a key reform measure of the government in the winter session of Parliament. Its passage will allow the RBI to issue new banking licences, and also help existing banks to consolidate.

The opposition wanted the clause on forward trading eliminated as it was not in the original Bill referred to the standing committee on finance. "This Bill incorporates all major recommendations of the standing committee on finance," the finance minister said.

The Bill increases shareholders' voting rights to 26 per cent from 10 per cent. This, the government has argued, will lead to infusion of more capital into the banking sector needed for consolidation. It also allows RBI to supersede boards of private sector banks and increase the cap on voting rights of private investors in public sector banks to 10 per cent from 1 per cent.

After the Bill was passed by a voice vote, the CPM's Saidul Haque pressed for a division, which saw his motion getting only 27 votes while those from the treasury benches got 205 votes. The other amendments proposed by the Left parties were also rejected by voice voting. The Trinamool Congress stayed away from the voting process even after opposing key provisions of the Bill.

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