LS clears bank Bill sans commodity trade clause

In a major legislative breakthrough, the UPA government on Tuesday secured the Lok Sabha's approval for the Banking Laws (Amendment) Bill, which seeks to pave the way for issuing new bank licences and attract more foreign capital into the sector by enhancing investors' say in the management of banks.

The government managed to overcome the BJP's opposition to the Bill by conceding to the latter's demand for dropping the contentious provision allowing banks to trade in commodity futures. This facilitated passage of the Bill in the lower House through a voice vote. The Bill will now go to the Rajya Sabha, before being sent to the President for signing it into law.

While the banking Bill is a crucial component of the financial sector reforms on the government's agenda, other bills including those on insurance and pension are unlikely to be cleared by Parliament in the current session, ending on Thursday.

The banking Bill seeks to empower the Reserve Bank of India to supersede bank boards when needed, a prerequisite for the central bank to issue new bank licences. Private entities including L&T, Mahindra & Mahindra, Reliance and a host of non-banking finance companies had evinced interest in bank licences. The government reckons that a clutch of new banks are needed to expedite the process of financial inclusion in the country.

The Bill also proposes to hike the cap on voting rights of shareholders of nationalised banks to 10% from 1% and that of private banks to 26% from 10%. Enhanced voting rights will be an additional incentive for foreign investors to acquire or raise stakes in Indian banks and help meet their capital needs.

The BJP had earlier taken a firm stand that the new clause allowing banks to trade in commodity futures could not be inserted as the version of the Bill vetted by the standing committee on finance did not have it. The government had contended that the procedural/propriety issue did not arise as the standing committee on consumer affairs had approved the provision last December. Relenting, finance minister P Chidambaram said on Tuesday: "(We are) withdrawing the clause (on commodity futures) in deference to the views expressed by members."

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