Comprehensive amendment to Banking Regulation Act on cards

New Delhi, March 23 | Updated: Mar 24 2005, 05:35am hrs
The finance ministry is in the process of bringing in a comprehensive amendment to the Banking Regulation Act. A bill for this purpose is likely to be introduced in Parliament after the recess. The amendment package would include removing the lower and upper bounds to the statutory liquidity ratio (SLR), while providing flexibility to the Reserve Bank of India to precribe prudential norms. Necessary amendments would also be made to allow banking companies to issue preference shares and remove the existing 10% cap on voting rights.

The government was earlier planning to introduce these amendments in phases. However, now we have decided to bring in a comprehensive amendment in the Banking Regulation Act, a senior government official said.

Separately, the RBI Act, 1934, would also be amended in a bid to remove the limits of the cash reserve ratio to facilitate more flexible conduct of monetary policy.

It is learnt that the RBI is working out the nitty gritties of the amendments.

It may be noted that finance minister P Chidambaram, while presenting the Union Budget, had announced amendments in Banking Regulation Act and RBI Act to give the central bank powers of revising SLR and CRR.

At present, commercial banks have to allocate 25% of their deposits as SLRs and 3% as CRR.

The amendments would enable banks to increase their lending to industry, agriculture and infrastructure sectors.

Similarly, the amendment in the RBI Act would also allow the central bank to lend or borrow securities by way of repo, reverse repo or otherwise.

The banks would also be able to issue preference shares after the Banking Regulation Act is suitably amended. Preference shares can be treated as regulatory capital under specified circumstances as per Basel-II norms.

The Bill would also empower the central bank to carry out supervision of banks and their subsidiaries.