10% Ceiling On Voting Rights In Banks To Go

New Delhi, May 27 | Updated: May 28 2004, 05:30am hrs
The government is contemplating to lift the 10 per cent cap on voting rights of foreign partners in the banking sector. An announcement to this effect is likely to be made by finance minister P Chidambaram in his budget speech. The voting right will be in line with the shareholding pattern.

Speaking to FE, a senior finance ministry official said the issue will be looked into by the ministry and a final decision will be then taken. With the kickstarting of the pre-budget exercise, the new government is likely to take up the issue on a priority basis.

We can expect an announcement on this on the budget day itself, the official said. Earlier the NDA government had increased the foreign direct investment cap from 26 per cent to 74 per cent but did not lift the cap on voting rights. Senior bank officials have expressed concern over the issue, There is very little that the government can achieve by increasing the FDI cap on one hand but on the other keeping the voting rights as it is at 10 per cent, a bank official pointed out.

Despite the NDA governments decision to increase the FDI cap in the banking sector to 74 per cent, there have been no major applications for increasing or picking up stake in an Indian bank by any foreign player.

Experts said the decision has failed to create any impact due to the ambiguity over the issue of voting rights.

Meanwhile the government is likely to set up a committee to study the merger and acquisition process of banks.

However officials said the new government will not reverse the merger proposal of IFCI Ltd with Punjab National Bank.