Government decides to put on hold the Banking Laws (Amendment) Bill
NEW DELHI: The wait for new bank licences just got longer as the government has decided to put on hold the Banking Laws (Amendment) Bill.
Senior officials in the government said the Bill would not be taken up until differences are resolved between the Reserve Bank of India and the Competition Commission of India over whether the latter should have the remit to review mergers and acquisitions in the sector.
"The group of ministers, headed by the new finance minister, on amendments to the Competition Act has not taken a decision yet. Till it does so, the Banking Laws Amendment Bill will not be taken up," a government official said on condition of anonymity.
The Bill, an amendment to the Banking Regulations Act of 1949, was introduced in the Lok Sabha in March 2011. Among other proposals, it seeks to keep mergers and acquisitions in the sector under the purview of RBI, the sector regulator.
Earlier, C Rangarajan, chairman of the Prime Minister's Economic Advisory Council and a former RBI governor, had suggested that RBI should consider issuing new bank licences without amending the Banking Regulations Act.
"There is scope for more banks to come in as they come with new ideas," Rangarajan had said. "I think if old regulations are inadequate, then they must be modified. Otherwise, RBI can also consider using old regulations on the basis of which it can give new licences."
But RBI has indicated that it would be open to issuing new bank licences only when it is given more powers to regulate the sector. The Banking Laws (Amendment) Bill seeks to give RBI the power to supersede bank boards as well as inspect other arms of banks, such as mutual funds and insurance, to ensure that their operations do not pose any systemic risk to the lenders.
"The group of ministers on amendment to the Competition Act is exploring the possibility of extending the scope of the Competition Commission of India across all sectors. So, it is a direct clash," the official quoted earlier said.
The Banking Laws (Amendment) Bill also seeks to allow private banks to raise the voting rights to 26% from a maximum of 10% as recommended by a parliamentary standing committee. However, for buying more than 5% of equity stake, approval of RBI will be mandatory.
The parliamentary committee, which had approved the changes, had also said that M&As should not be kept out of the competition regulator's purview forever. It had said that this should be considered as a special case and an "expedient measure" to be revisited after both Reserve Bank and Competition Commission have gained some experience
Sat, Aug 11, 2012 at 12:15
Priority sector lending by bank: How does it work
Priority Lending Rules originated in 1968, along the time when banks were nationalised with the aim of using their funds for national building. Banks were told to lend one third of their funds to sectors that the government determined as priority; largely agri and small scale. By 1985 this proportion rose to 40%.
Priority Lending Rules originated in 1968, along the time when banks were nationalised with the aim of using their funds for national building. Banks were told to lend one third of their funds to sectors that the government determined as priority; largely agri and small scale. By 1985 this proportion rose to 40%.
http://www.moneycontrol.com/news/economy/priority-sector-lending-by-bank-how-does-it-work_743760.html
Why is the issue in the news now? CNBC-TV18's special show Indianomics explains.
Because a committee headed by former Union Bank Chairman MV Nair recommended that banks may directly lend 9% to small farmers and 7% to micro industries. The remaining targets the committee recommended be loosely defined to include even lending to warehousing and cold chain as lending to agriculture.
The recommendations were however not accepted in toto by RBI. Nothing changed under the new rules except it became more punishing for foreign banks but we will come to that in a bit.
Here’s how the current targets look : -
Targets for priority sector loans
- Overall loans: 40%
- Lending to agri: 18%
- Direct loans to agri: 13.5%
- Indirect loans to agri: 4.5%
- Micro Industry Loans: Upto Rs 1 cr
- Housing loans (in small towns): Upto Rs 25 lakh in small towns.
- Loans to food processing units
- Education Loans: Under Rs 10 lk
- Loans to farmers indebted to moneylenders
- Micro industry loans upto Rs 1 crore
- Housing loans upto Rs 25 lakh in small towns
- Loans to food processing units
- Education loans under Rs 10 lakh
- Loans to farmers indebted to moneylenders
http://www.moneycontrol.com/news/economy/priority-sector-lending-by-bank-how-does-it-work_743760.html
| Banks biased against SMEs, agri sector in debt recast: RBI | |||||||||||||||||||||
| BS Reporter / Mumbai Aug 12, 2012, 00:59 IST Banks are giving preferential treatment to the corporate sector in debt restructuring, and tend to ignore the retail, agriculture and small and medium enterprise (SME) sectors, which are also the victims of economic downturn, according to Reserve Bank of India (RBI) Deputy Governor, K C Chakrabarty. “Data suggests that banks are biased while restructuring. Those who can lobby and those who can hire consultants are getting better deals,” Chakrabarty said, while speaking at seminar of corporate debt restructuring.
“Public sector banks have more retail, agriculture and SME book but it’s not reflected in the restructured book, while private sector banks have more corporate book, but the restructuring quantum is very less,” Chakrabarty added.
Corporate loan restructurings surged 156 percent to a record high last financial year, in the wake of economic slowdown and high interest rate. A recent committee of RBI on debt recast had suggested taking away regulatory leeway of lower provisioning given to loan recast in two years time and suggested high provisioning in the interim. “We are looking into all suggestions received on the draft guidelines on restructuring,” Chakrabarty said. The deputy governor emphasised the need to have a proper structure to be put in place by banks for debt recast. “The system needs be put in place at zonal, district and bank level to address the issue and every restructuring need not come to head office,” he added. Public sector banks restructure their debt in order to avoid addition of non-performing assets (NPAs) in their books. “The banks need to more prudent while restructuring a debt,” Chakrabarty said. Heavy restructuring has pinched public sector banks, as it was evident from their first quarter results. The country’s largest lender, State Bank of India (SBI), though added only Rs 654 crore in restructured portfolio in the first quarter, took its restructured book to Rs 36,904 crore. It is also close to finalising restructuring package of the loans worth Rs 3,000 crore. SBI’s gross NPA ratio was at 4.99 per cent at the end of the first quarter. Central Bank of India restructured assets worth Rs 2,674 crore in the quarter, taking the percentage of restructures advances to 13.39 per cent of total advances. “Sincerity of the borrower and viability of restructuring should be ensured before a debt is restructured said Chakrabarty adding that the banks tend to restructure debt without prudent checks,” Chakrabarty said. http://www.business-standard.com/india/news/banks-biased-against-smes-agri-sector-in-debt-recast-rbi/483026/ | |||||||||||||||||||||
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