The government today said there was a need to amend the Banking Regulation Act which will enable the Reserve Bank of India (RBI) effectively regulate the banking sector.
“There is a need to amend the Banking Regulation Act to enable RBI to obtain information from other entities — whoever is getting a licence — so they (RBI) are in a position to regulate the banking sector institutions appropriately,” R. Gopalan, secretary in the department of economic affairs of the finance ministry, said on the sidelines of the Skoch Summit here.
RBI, which is forming draft guidelines for the entry of fresh players in the sector, had sought more powers from the government to regulate banks. For example, existing regulations does not allow RBI to supersede the board of a bank, which the regulator now wants.
The draft legislation proposes to give powers to RBI to supersede the board of directors of a bank for a period of up to one year and appoint an administrator.
The Banking Laws (Amendment) Bill of 2011, introduced in the Lok Sabha during the Budget Session, seeks to give voting rights to investors commensurate with their shareholding in private sector banks.
Gopalan said RBI was expected to come out with draft guidelines on new bank licences soon.
“RBI has given it (recommendations) to the finance ministry and is also consulting other stakeholders. Based on this, they will come out with draft guidelines (on new bank licences) soon and put it in the public domain for consultation,” he said.
Last year, RBI circulated a discussion paper on new bank licences which examined the pros and cons of allowing industry houses and non-banking finance companies in the sector.
On the timeline of the issuance of new bank licences, Gopalan said it could be done once amendments to the Banking Regulation Act were cleared by Parliament.
“I have a feeling that once the draft guidelines are out, the amendment to Banking Regulations Act will be passed. I think this will be the right setting for licences to be issued,” he said.
On the country’s economic growth in the current financial year, Gopalan said, “It should be between 8 and 8.5 per cent depending upon how long the prices continue to remain at elevated levels. That we do not know at this point of time as we are just two months into the new financial year.”
However, economic growth, as measured by the gross domestic product, improved to 8.5 per cent in 2010-11 from 8 per cent in 2009-10, due to better farm output, construction activities and financial services performance.
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