Govt may ease restrictions on overseas investors in banking

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UPA government, victorious in a confidence vote this week, will push to lift restrictions on overseas investors’ control of privately-run banks, finance minister Palaniappan Chidambaram said.

Stalled legislation removing a 10% cap on foreigners’ voting rights in banks may be revived before laws on pensions and insurance, Chidambaram said on Thursday.

“We seem to have acquired the political space to take the liberalisation process forward,’’ Chidambaram said in a telephone interview from New Delhi. “We are looking into various aspects of the foreign direct investment regime, trying to see whether further liberalisation is possible.’’

The Bombay Stock Exchange’s banking index is set for its biggest weekly gain since it was created 6 1/2 years ago after Singh’s victory. The bill would give ING Groep NV, the largest Dutch financial services company, more control over Bangalore-based ING Vysya Bank Ltd. with its 44% stake.

“There is likelihood of further reforms,’’ said Tushar Poddar, a Mumbai-based economist at Goldman Sachs Group Inc. “Given the limited time at the government’s disposal, and the motley group of new allies, reforms are by no means certain.’’

India’s stock market surged more than fourfold in the first 3 1/2 years of Singh’s administration as the 75-year-old Prime Minister presided over an economic expansion that averaged 8.9% a year, the fastest since independence in 1947. The Prime Minister’s five-year tenure comes to an end in May.

Easing legislation Amar Singh, whose Samajwadi Party replaced the communists as the government’s main ally, said on July 10 he may back legislation easing curbs on foreign companies seeking to expand in insurance, pensions and banking.

The bill to remove a 10% cap on the voting rights of foreign investors in non-state banks is pending in Parliament while a parliamentary committee is considering a bill to open the pensions business to overseas investors, Chidambaram said.

The draft bill to raise the foreign investment ceiling for insurers to 49% from 26% is with the government, he said. The banking and pension bills have been languishing in Parliament for three years and the finance minister announced the insurance measures in 2006.

“All three are on the agenda of the ministry of finance,’’ Chidambaram said. “Bills in advanced stages of consideration will be taken up first.’’