Lok Sabha paves path for new banks

The Banking Laws (Amendment) Bill, 2011, which enables the Reserve Bank of India (RBI) to, among other things, issue licences for new banks to come up, was passed in the Lok Sabha on Tuesday. That should cheer up companies like L&T Finance Holdings, Mahindra & Mahindra Financial Services, Shriram Capital, Bajaj Finserv and Tata Capital, which have been looking to set up banks.

The central bank, which has been very conservative in allowing new entrants to the sector — it has issued only 12 licences in two decades — is expected to issue the final norms for new bank licences soon.

The bill, to be tabled in Rajya Sabha today, also gives RBI the power to supersede bank boards and inspect the books of associate companies, and makes prior approval of RBI mandatory for acquiring 5% or more stake in a bank.

It also proposes to hike voting rights of investors in private banks to 26% from 10% and in public sector banks to 10% from the current 1%.

Finance minister P Chidambaram said most of the provisions are aimed at strengthening RBI. The clauses on allowing banks to trade in commodity futures and to keep banking mergers out of the purview of Competition Commission had, however, to be dropped following strong opposition.