VOTING RIGHTS CAP IN PRIVATE BANKS AT 26% NOW

The Union Cabinet has allowed private banks to raise voting rights to 26% as recommended by a parliamentary standing committee. However, for buying equity stake of above 5%, approval of the central bank will be mandatory.

It has been decided that cap on voting rights of shareholders in private sector banks, which is currently at 10%, would be raised to 26%, confirmed a finance ministry official. The amendments are part of changes approved by the Cabinet in the proposed Banking Laws (Amendment) Bill which was introduced in the Lok Sabha in March 2011.

"The cabinet has cleared banking laws (Amendment Bill 2011). It also approved increase of voting rights from 10% to 26% for private-sector banks," Information and Broadcasting Minister Ambika Soni told reporters after a cabinet meeting . At present, the voting right is restricted to 10%, irrespective of the share holding pattern in the banks.

The standing committee in December last year, had suggested raising the limit in a phased manner while stating that it was crucial for the Reserve Bank of India (RBI) to ensure strict and efficient regulatory compliance's to prevent any misuse of the provision of increasing the limit. Both bankers and sectoral experts have argued that there was a need to raise the voting rights in order to maintain a balance between economic control and corporate democracy.

Also it had been recommended by the committee, headed by former finance minister Yashwant Sinha, that RBI should conduct due diligence of "fit and proper persons/entities." This move is being seen as a major reform by the government, which has recently been accused to be in a policy paralysis stage.

The Banking Laws (Amendment) Bill, 2011, clubs various banking amendment Bills, including changes in the Banking Regulations Act, to increase the voting power of shareholders in banks. The Banking Law Amendment Bill also seeks to give the central bank powers to vet mergers and acquisitions in the sector to ensure that their operations do not pose any systemic risk to lenders.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/voting-rights-cap-in-private-banks-at-26-now/articleshow/12889844.cms