Banking bill passed, India clears way for bigger foreign investment in banks

"The raising of voting cap will have a positive impact in attracting funds as it will help foreign investors to have more say in banks," said Jagannadham Thunguntla, head of research at brokerage firm SMC Global Securities.

The main opposition party Bharatiya Janata Party (BJP) threw its weight behind the bill after the government dropped a clause allowing banks to trade commodities futures amid fears it could lead to risky, speculative trading.

"It will lead to better investor interest in the smaller private sector banks.

It is also a sentiment booster, and it will pave the way for the Reserve Bank of India to issue new banking licences," said Sujan Hajra, chief economist at Anand Rathi Securities in Mumbai.

HAVING MORE SAY

India has struggled for years to reform and liberalise state-dominated sectors such as banking, insurance and pensions due to political opposition, including from within the ruling Congress party.

The banking bill will give the RBI greater regulatory oversight over local banks and the ability to overrule boards when the banks are facing financial difficulties.

The RBI had demanded more oversight as a precondition to issuing new banking licences.

The bill also enables the government to raise voting rights in state banks such as the State Bank of India to 10 percent from just 1 percent now, acceding partially to foreign investors' demands to have more say in Indian banking.

The bank employees unions, reluctant that any control is ceded, have strongly opposed this move for years and are set

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