New Delhi: The cabinet on Thursday approved an increase in the limit on voting rights of shareholders in non-state banks in a move that may encourage investors to set up private sector banks in India.
“The cabinet approved a proposal to raise the cap on voting rights for shareholders in private banks to 26% from 10%,” information and broadcasting minister Ambika Soni told reporters in New Delhi on Thursday. The cabinet move came as part of approvals for changes in the Banking Laws (Amendment) Bill.
The cabinet, chaired by Prime Minister Manmohan Singh, cleared the Bill while accepting most of the recommendations made by the parliamentary standing committee on finance.
The Bill was presented in Parliament last year, after which it was sent to the standing committee for its views. The committee, headed by former finance minister Yashwant Sinha, had recommended raising the limit on voting rights in private sector banks to 26% from the current 10% and in public sector banks from 1% to 10%. The plan is part of the Banking Laws (Amendment) Bill that was first introduced in 2005 in Parliament, but not passed.
Finance minister Pranab Mukherjee had announced in his 2010 budget speech that RBI will allow more private sector entrants into the banking space.
“If the Bill gets passed, then any shareholder in new banks can hold up to 40-50% stake and bring it down gradually over a period of time while still having substantially higher voting rights of 26%, rather than 10%,” said Ravi Trivedy, an independent consultant. “Why would a promoter want to get into the banking space if he cannot exercise substantial control.”
The only major incumbent bank promoters who will be benefited by this will be those of ING Vysya Bank Ltd, he said. “Promoters of some other banks such as Kotak Mahindra Bank have already got a special dispensation from RBI,” Trivedy added.
Bloomberg contributed to this story.
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