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

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The controversial clause allowed futures trading for banks from a bill which seeks to amend banking laws. (Reuters) The controversial clause allowed futures trading for banks from a bill which seeks to amend banking laws. (Reuters)
SummaryThis happened only after a controversial clause was dropped.

The Indian Parliament cleared a path for more foreign investment in the banking sector by approving a bill to increase shareholders' voting rights, after dropping a controversial clause allowing banks to trade in commodity futures.

Prime Minister Manmohan Singh's government is racing against the clock to pass reforms economists say are needed to breathe life into Asia's third-largest economy, which is headed for the worst year of growth in a decade.

Progress so far has been slow.

The banking bill is the only piece of major reform legislation to be passed in a parliament session again disrupted by protests and shouting matches.

The session ends on Thursday.

Finance Minister P. Chidambaram told parliament the government was abandoning efforts to pass a bill this session to open India's cash-strapped insurance sector to foreign investment - a move eagerly watched by investors.

Another bill aimed at easing land acquisition for infrastructure and mining projects was also deferred to next year.

The banking bill will increase shareholders' voting rights to 26 percent from 10 percent in private sector banks, making investment more attractive to foreign players.

The bill will now move to the upper house of parliament for voting on Thursday, where it is also likely to be passed as it is backed by India's two biggest parties.

The legislation clears the way for more corporate houses to run banks by enabling the Reserve Bank of India (RBI) to issue new bank licences.

That will boost the government's drive to expand access to financial services in a country where more than half the 1.2 billion population is without a bank account.

"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

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