The Telegraph
Since 1st March, 1999
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Ceiling on voting rights of banks set to go

New Delhi, Aug. 19 (PTI): A parliamentary panel today approved the banking regulations (amendment) bill, which would lift the 10 per cent ceiling on voting rights in banks, smoothen mergers and acquisitions of private banks and permit foreign banks to set up subsidiaries in India.

In its report tabled in Parliament, the standing committee on finance wanted the regulatory mechanism to be made “fool-proof and strong” to check misuse of the provisions on voting rights by unscrupulous Indian and foreign investors.

The panel asked the Reserve Bank to ensure “strict compliance” of the provision that a bank should inform the RBI whenever an investor acquires 5.0 per cent or more stake in it.

Such a provision would guard against hostile takeover attempts by firms or individuals.

Referring to sub-section (2) of section 12 of the Banking Regulation Act, the panel said once it is removed, opportunities will be available to all investors and the investments will not remain confined to foreign banks only.

At present, an investor is allowed a maximum 10 per cent voting right irrespective of his holding in a bank.

This has impeded foreign banks in setting up subsidiaries in India even after the government raised the sectoral cap to 74 per cent in private banks.

If the ceiling on voting rights is removed, many foreign banks would bring in a minimum $60 million in their Indian arm as against $10 million required for a branch.

“The bill will not only provide for setting up of a subsidiary by foreign banks but also pave the way for consolidation process in private banks,” it said.

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