LS passes Banking Bill; paves way for foreign investment

New Delhi: In a major step to reform India's banking sector, the Lok Sabha on Tuesday passed a bill paving way for foreign investments in the sector and establishment of new private banks.

The Banking Laws (Amendment) Bill, 2011 was passed by the Lower House after two short adjournments and withdrawal of clauses allowing banks to trade in futures and keeping the sector outside the purview of Competition Commission.

"Since the bill is too important for me to pass, therefore I am bringing the Bill dropping the controversial clauses," Finance Minister P Chidambaram said, winding up the discussion on the Banking Laws (Amendment) Bill, 2011.

The Bill, which seeks to strengthen banking regulation, was passed by the voice vote after amendments proposed by the Left Parties were rejected by the House.

"The Banking Bill aims to raise the voting rights of investors in private sector banks to 26 per cent, from 10 per cent and will encourage foreign investment...it is a game changer to achieve financial inclusion by opening new banks," said Jagannadham Thunuguntla, head of research at brokerage firm SMC Global Securities.

The Bill will allows RBI to supersede boards of private sector banks and increase the cap on voting rights of private investors in PSBs to 10 per cent, from 1 per cent.

RBI wanted the government to amend the banking laws before starting the process towards issuance of new banking licences.

The Bill, along with proposed legislations on pension and insurance, was one of the five key reforms measures on the government's agenda during the current session of Parliament.

The passage of the Bill, Shinjini Kumar, Director PWC India said, "Creates necessary condition for some of the important steps forward, the sufficient conditions will be known after RBI issues final guidelines".