A Parliamentary panel has suggested raising the cap on shareholders' voting rights in private sector banks to 26 per cent from the current 10 per cent. This recommendation of the Standing Committee on Finance, headed by Mr Yashwant Sinha, is in sharp contrast to the Government's proposal in the Banking Laws (Amendment) Bill 2011. This Bill proposes that voting rights in private sector banks be proportionate to the shareholding, while removing the existing 10 per cent ceiling.
Allowing voting rights to be proportionate to the shareholding would enable private sector banks to access capital for business development, the Finance Ministry had contended. However, the panel is not in favour of any such move by the Government.
Corporate democracy
The voting right cap should be increased to 26 per cent in order to maintain a balance between concentration of economic power/control and promotion of corporate democracy, the Committee said in its report tabled in Lok Sabha today. The report is, however, silent on the Government's proposal to raise the voting rights cap in public sector banks to 10 percent, on par with State Bank of India.
The panel has also urged the Government to consider the merits of issuing non-voting shares as an avenue to expand the capital base of banks without allowing concentration of management control in a few banks. This would also enable them to grow faster, the panel report said.
The Parliamentary panel has also emphasised that policy-makers should not lose sight of the recent failures of some major private banks internationally, while formulating the new policy on banking licences as per the mandate proposed in the Bill.
Stability, development
“The Committee would like the stability of the banking system to be preserved, while nurturing growth and development of the banking sector, as a whole. Key issues and concerns, such as banking penetration, coverage and financial inclusion, should remain paramount and the entire banking industry, including banks in the private sector, should be clearly mandated to achieve the desired objective in this regard”, the report said.
The Parliamentary panel has also asked the Government to consider formulating an integrated modern banking law for the country, instead of bringing in piecemeal amendments.
The Standing Committee has supported the proposal to exclude bank mergers from the scrutiny of Competition Commission of India (CCI). This exemption should be considered a special case and should be revisited in due course in the light of experience gained by both the regulators — Reserve Bank of India and the CCI.