Baby steps to India bank reforms

New Delhi's reluctance to shed some of its 50-plus percent stakes in state banks, which have a market share of 70 percent and a bigger proportion of the sector's bad loans, means a big chunk of lending remains exposed to political interference.

The biggest risk in India for banks is the political risk, said Juergen Maiar, an Austria-based fund manager with Raiffeisen Euroasien Aktien that owns Indian shares worth $300 million, including in public and private sector banks.

Still, in what is seen as a positive step towards reform, India's parliament is expected soon to approve amendments to banking laws that include raising the limit on shareholders' voting rights in public and private sector banks.

However, the current parliamentary session, which ends on Sept. 7, has been paralysed by a furore over a state auditor investigation into coal block allocations, casting doubt over the timing of a vote on the bill.

If approved, the cap on voting rights for investors in private sector banks such as HDFC Bank and ICICI Bank would rise to 26 percent from 10 percent, and to 10 percent for government banks such as State Bank of India from just 1 percent now.

Higher voting rights will be good for investors. It will help banks raise capital from investors. But in public sector banks

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