India clears way for bigger foreign investment in banks
(Reuters) - The Lok Sabha cleared a path for more foreign investment in the banking sector by approving a bill to increase shareholders' voting rights, after dropping a controversial clause allowing banks to trade in commodity futures.
Prime Minister Manmohan Singh's government is racing against the clock to pass reforms economists say are needed to breathe life into Asia's third-largest economy, which is headed for the worst year of growth in a decade.
Progress so far has been slow.
The banking bill is the only piece of major reform legislation to be passed in a parliament session again disrupted by protests and shouting matches. The session ends on Thursday.
Finance Minister P. Chidambaram told parliament the government was abandoning efforts to pass a bill this session to open India's cash-strapped insurance sector to foreign investment - a move eagerly watched by investors.
Another bill aimed at easing land acquisition for infrastructure and mining projects was also deferred to next year.
The banking bill will increase shareholders' voting rights to 26 percent from 10 percent in private sector banks, making investment more attractive to foreign players.
The bill will now move to the upper house of parliament for voting on Thursday, where it is also likely to be passed as it is backed by India's two biggest parties.
The legislation clears the way for more corporate houses to run banks by enabling the Reserve Bank of India (RBI) to issue new bank licences. That will boost the government's drive to expand access to financial services in a country where more than half the 1.2 billion population is without a bank account.
"The raising of voting cap will have a positive impact in attracting funds as it will help foreign investors to have more say in banks," said Jagannadham Thunguntla, head of research at brokerage firm SMC Global Securities.
The main opposition party Bharatiya Janata Party (BJP) threw its weight behind the bill after the government dropped a clause allowing banks to trade commodities futures amid fears it could lead to risky, speculative trading.
"It will lead to better investor interest in the smaller private sector banks. It is also a sentiment booster, and it will pave the way for the Reserve Bank of India to issue new banking licences," said Sujan Hajra, chief economist at Anand Rathi Securities in Mumbai.
HAVING MORE SAY
India has struggled for years to reform and liberalise state-dominated sectors such as banking, insurance and pensions due to political opposition, including from within the ruling Congress party.
The banking bill will give the RBI greater regulatory oversight over local banks and the ability to overrule boards when the banks are facing financial difficulties. The RBI had demanded more oversight as a precondition to issuing new banking licences.
The bill also enables the government to raise voting rights in state banks such as the State Bank of India to 10 percent from just 1 percent now, acceding partially to foreign investors' demands to have more say in Indian banking.
The bank employees unions, reluctant that any control is ceded, have strongly opposed this move for years and are set to strike on Thursday in protest.
The bill will allow foreign banks to convert their Indian operations into local subsidiaries or transfer shareholding to a holding company of the bank without paying stamp duty.
Foreign banks have long sought these changes to the law which they say would encourage them to expand their operations in India. Under current laws, foreign banks such as Citibank (C.N) and Standard Chartered Plc have to pay 20-30 percent tax as capital gains and stamp duty when transferring branches to a new legal entity.
Reserve Bank of India may relax norms for entry of foreign banks
| By Vaibhav Aggarwal |
| Dec 18, 2012
The banking regulator, Reserve Bank of India, could soon come out with relaxed rules for the entry of foreign banks in India.
Talking on the matter, the Commerce Secretary Mr. S R Rao said, "RBI is very soon, I believe, is going to announce a very progressive policy for permitting opening of more foreign banks..."
He further added, "I do hope that with far more regional integration of economies and commerce, the market forces themselves will demand that each of the central banks of sovereign nations take similar calls and I am sure the time is propitious and it is going to happen sooner than later."
At present, foreign banks can expand their presence in the country on a reciprocal basis.
About a year ago, the Reserve Bank had suggested that foreign banks should be allowed to be opened in the country as wholly owned subsidiaries, as opposed to the existing practice of opening branches.
In the suggestion it had said, "On balance, the subsidiary model has clear advantages over the branch model despite certain downside risks... There may be a need to incentivise the subsidiary form of presence of foreign banks."
Currently, there are almost 34 foreign banks in India. Out of them, five are major multinational banks including HSBC Bank, Deutsche, StanChart and Citibank.
http://www.rupeetimes.com/news/car_loans/reserve_bank_of_india_may_relax_norms_for_entry_of_foreign_banks_7640.html |
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