AIBOC CIRCULAR NO. 23 DATED 09.03.2011

AIBOC issued its circular No. 23 dated 09.03.2011 on Banking Reforms Bill. We are reproducing the same here for our readers.

Circular No. 23                                                       Date: 09.03.2011

ALL AFFILIATES / MEMBERS

BANKING REFORMS BILL

The Government of  India is yet again on a banking reforms trail, this time by introducing Banking Regulation (Amendment) Bill, which proposes to increase the voting rights of foreign investors in Private Sectors Banks. The purpose and intent of the bill is frought with potential threat to the existence of the old generation Private Sector Banks. Therefore, we have today, addressed a letter to the Hon’ble Union Finance Minister, opposing the proposed move.

The text of the letter is annexed and is self- explicit.

Further developments in the matter will be informed to you.

With greetings,

Sd/-

(G.D. NADAF)

GENERAL SECRETARY

TEXT OF THE LETTER

We invite your kind attention to news paper reports on the proposed Banking Regulation (Amendment) Bill, which has been approved by the cabinet. The Bill proposes to align the voting rights of foreign share holders in proportion to their equity holding in Private Sector Banks by removing the present 10% cap on voting rights, regardless of their share holding.

The bill also seeks to liberalize norms for raising capital through preference shares.

The arguments in favour of the above reforms are;

Ø       The Banks need more capital and this will prompt those who are desirous of putting more capital into banks, as and when there are initial and follow-on public offers.

Ø       This will strengthen the Indian Banking system at a time when the Indian economy is on a strong pedestal.

We have been expressing our apprehensions on such moves, which will certainly open the flood gates to foreign investors to invade the Indian Banking system, which has weathered the onslaught of the global economic meltdown, in the wake of US economic recession. The proposed reforms will offer the Private Sector Banks on a platter to the foreign investors, who will put their money for reaping enormous profit. The lust for profit making was the main reason for the debacle that followed the US recession. As our Banking system was subjected to rigorous regulatory mechanism and also 90% of our Banking operations are with the Public Sector Banks, our Banking system was saved from the perilous impact of global recession. This factual aspect should not be forgotten.

We recall here our stiff opposition to such moves initiated by the Ministry of Finance in the year 2005, as well as the Left Parties, the proposal of the Government to pursue financial sector reforms were shelved. We express our strong opposition to the moves of the Government.

Therefore, we urge upon you to retain the current share holder voting rights of 1% in State owned Banks and 10% in Private Banks, irrespective of the equity holding. By further liberalizing the Indian Banking Sector, the foreign investors will make a foray in a big way, like aggressors and dominate the hither to best managed Private Sector Banks which are facing a volatile situation on account of the policy pronouncements by the Ministry of Finance.

The old generation Private Sector Banks have been functioning just like Public Sector Banks and there is no gainsaying the fact that they have been very effectively implementing all the Government sponsored schemes, in the area of their operation. In this background we have been demanding nationalization of the old generation private sector banks or merge these banks with nationalized banks.

We hope our views on the issue will be taken note of and stop the proposed reforms in the financial sector and save the Private Sector Banks being lapped up by foreign investors.

With warm greetings and regards.

Yours faithfully

Sd/

(G.D.NADAF)

GENERAL SECRETARY