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Monday, February 28, 2011

Banking Laws Amendment Bill to benefit commercial banks

Commercial banks , especially those in the private sector, will get a boost with government reviving plans to increase their voting rights through changes in the law. The Banking Laws Amendment Bill , 2011, will give shareholders voting rights in proportion to their holding.

As of now, the voting rights of a shareholder in a PSU bank is limited to 1% of their holding while in the case of private banks it is 10%. "Aligning ownership right with the ability to influence decision is very positive from the governance point of view and will also positive for foreign investors looking at investment opportunities here," said Naresh Takkar , MD and CEO of rating agency Icra Ltd.

Many banks and investors have been demanding these changes for a long time now. However, there was resistance from the RBI on grounds that an entity or an individual would corner a chunk of shares in the bank without regulatory approval. The RBI restricts bulk purchases now but that is only in the form of a directive.

To prevent this, the Bill has proposed that an individual or entity can hold more than 5% stake in a bank only after receiving approval from RBI.

Source: EconomicTimes


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