The Parliamentary Standing Committee on Finance has differed with the government's proposal to extend voting rights to investors in private sector banks to the extent of their shareholding. Instead, it has recommended a hike in investors' voting rights with a cap of 26 per cent to maintain a balance between economic control and promotion of corporate democracy.
Introduced in the Lok Sabha in March this year, the Banking Laws (Amendment) Bill, 2011, had proposed raising the voting rights of investors, now capped at 10 per cent, to levels commensurate with their shareholding in private sector banks. In its report on the Bill tabled in the Lok Sabha on Tuesday, the standing panel headed by BJP leader Yashwant Sinha said: “The [Finance] Ministry may consider increasing the limit only to 26 per cent to keep a balance between conflicting factors underpinning the decision, namely concentration of economic power/control and promotion of corporate democracy.''
In this regard, the panel also suggested that the Reserve Bank of India should ensure that the regulatory mechanism is adequate and strictly complied with to prevent any misuse of the provision of increasing the limit.
Being the banking sector's nodal agency, the apex bank should conduct due diligence of ‘fit and proper persons/entities' and also take sufficient safeguards while stipulating conditions as to credentials, source of funds, track record, financial inclusion, before granting approvals under this clause, it said.
The committee, the report said, would also like the government “to consider the merits of issuing non-voting shares as an avenue to expand the capital base of banks without allowing concentration of management control in a few hands and which would also enable them to grow faster.''
The panel agreed with the government's proposal to keep bank mergers outside the purview of the Competition Commission of India (CCI) temporarily but with certain caveats in that while supporting the proposal to keep bank mergers outside CCI's purview, it recommended that “this exception should be considered as a special case.”
The committee also made it clear that its report on the Bill referred to it did not convey its views on mergers and acquisition policy in the banking sector as such as “the issue merits a separate discourse”.
On the proposed Depositor Education and Awareness Fund as provided in the Bill, the panel suggested that such a fund should be created without compromising the rights and claims of depositors or their legal heirs who should be able to secure their claims without difficulty. Legal heirs of depositors, it said, should be informed before transfer of money to the proposed fund.
