The cap on voting rights in private sectors can be raised to 26 % in a phased manner

The Union Cabinet, on Thursday, decided to retain the voting rights in the private sector banks at 10 per cent and felt it could be raised progressively to 26 per cent as suggested by the Standing Committee.

The decision, according to the sources, was taken by the Cabinet while approving changes in the proposed the Banking Laws (Amendment) Bill, 2011. It has been decided that the cap on voting rights in the private sectors, which is now at 10 per cent, could be raised to 26 per cent in a phased manner.

In December last, the Parliamentary Standing on Finance had recommended raising voting rights of investors in private sector banks but with a cap of 26 per cent with a view to maintaining a balance between economic control and promoting corporate democracy.

The Banking Laws (Amendment) Bill, 2011, introduced in the Lok Sabha in March, 2011, had proposed providing voting rights to investors commensurate with their shareholding in the private sector banks.

At present, the voting right is capped at 10 per cent irrespective of the share holding in private sector banks.

The Committee in its report on the Banking Laws (Amendment) Bill, 2011, tabled in the Lok Sabha had suggested the RBI must ensure that regulatory mechanism is adequate and strictly complied with to prevent any misuse of the provision of increasing the limit.

It had recommended that RBI, being the nodal agency in the banking sector, should conduct due diligence of “fit and proper persons/entities...”

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