LS clears bank Bill sans commodity trade clause

Dec 19 2012, 01:02 IST
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SummaryIn a major legislative breakthrough, the UPA government on Tuesday secured the Lok Sabha’s approval for the Banking Laws Bill, which seeks to pave the way for issuing new bank licences and attract more foreign capital into the sector by enhancing investors’ say in the management of banks.

asserted that “our banks are well-capitalised” and would be able to perform the higher lending demands for the economy, which has turned the corner. The minister reiterated his promise to infuse Rs 15,000 crore into public sector banks in the current fiscal.

Making a case for merger of some small banks with the big ones he said the country needs “two-three world size banks,” through consolidation.

Chidambaram clarified that while RBI would regulate banking-related activities in the banking sector, the Competition Commission of India (CCI) would have jurisdiction over competition practices in the sector which included merger regulations. “If we exempt the banking sector from the Competition Act, then sectors such as insurance, telecom and petroleum, which all have the respective sectoral regulators will also make similar demands,” he said.

Experts hailed the Lok Sabha nod for the legislation, but said that dropping the provision to allow banks to trade in commodity futures was regressive. Care Ratings chief economist Madan Sabnavis said: “Banks have significant direct and indirect exposure to commodities, and a permission to participate in futures would have enabled them to hedge this exposure. This is pertinent in the backdrop of rising bad loans, especially commodity-related exposures such as agriculture loans or credit to steel companies.”

Meanwhile, shares in Financial Technologies (India) and Multi Commodity Exchange of India (MCX) dropped 1.2% and 0.8% respectively at the BSE following the government’s announcement to drop the clause.

The insurance Bill, inter alia, seeks to hike FDI limit in the sector to 49% while the pension Bill envisages to allow FDI at par with the insurance sector in pensions, besides giving statutory powers to the sectoral regulator.

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