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[Economy] Banking Amendment Bill: Issues, Features, Problems, Reforms meaning explained
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. What is Banking Regulation Act? RBI Power # 1: Can remove entire Board of a Bank RBI Power # 2: Connected Lending Prevention RBI Power # 3: Unclaimed Accounts Public Banks Issue# 1: Need consolidation Public Banks Issue# 2: Need more investment Banks issue # 3: More voting rights for investors Foreign Banks Issue # 1: Stampduty Foreign Banks Issue # 2: Want to invest in Commodity Standing Committee problem Set: parliament 1. Parliament fight # 1: Commodity speculation 2. Parliament Fight # 2: Competition Monitoring: RBI vs CCI 12. Anti-Bill arguments Boring technical details intentionally skipped. I dont do Ph.D on current affairs, neither should you.
directors. But that is not enough. What if the whole board of directors is involved in some mischief. RBI So, I want powers to remove the entire board of directors. I also want you to increase the rates of existing monetary penalties that I can impose on a bank if it disobeys my rules, directives or gives me false information. Ok agreed.Ill get you the powers to supersede boards of the banks if any Chindu irregularities.And Ill increase the penalty rates as well.Anything else? RBI Second problem. Connected lending. Chindu What is that?
RBI
him interest also. Chindu Agreed. Anything else Yes one tea, two samosas and four more powers 1. If any person wants to buy more than 5% shares of any bank, hell have to take permission from me. And before giving him approval, I can put conditions on him, For example give me deposit worth Rs.xyz, so if you play some mischief, Ill take away your deposit. 2. If primary cooperative societies want to continue their banking business, theyll have to get a license from me. 3. I can conduct special audits of cooperative banks because theyre more liable to collapse and frauds. 4. If a bank fails to maintain the prescribed minimum amount of Cash Reserve Ratio (CRR) on any day, I can demand penalty interest from that bank.
RBI
Chindu All agreed. Anything else. RBI Thats enough for now. Ok then please leave my cabin and send the SBI chairman in. He too had an Chindu appointment with me.
investors
Before moving on, I must thank you for allowing us to issue bonus shares etc. But that alone will not bring investment in public or private sector banks. Chindu Why? Because in shareholders meetings, voting is done on many issues (for example election of board of directors, changing name of company etc.). A shareholder should have voting rights proportional to the number of shares held by him. But in case of public banks, the shareholders have only 1% voting right SBI irrespective of number of shares held. So they cannot heavily influence any Decision. I need you relax these voting rights. Only then foreign investors will be attracted to invest in Indian banks. SBI Chindu Agreed. Well revise the voting rights.
Chindu Agreed.
Set: parliament
In the parliament, Opposition members are shouting slogans. (as usual) Meera Kumar says beth jayiye, beth jayiye, kripyaa shaant ho jayiye.(as usual)
Chindu
implementation.Ok I back off, I remove this provision.CCI will have the power to investigate and clear mergers and acquisitions in the banking sector.
Lok sabha passed the bill. Rajya Sabha also passed the bill. Now this bill file will goto President. Once he signs it, this bill will become a Law.
Anti-Bill arguments
In December, employees of public banks went on strike. (although SBI employees did not join the strike.) The Bank unions give following Anti-Bill arguments: Government claims more banks = more branches = more poor people get banking facilities = financial inclusion. But it is mere lip service. Because new corporate banks/foreign banks wont have any interest in serving poor people. If mergers are allowed then rural branches will close down and/or rural banking operations will be outsourced via contractual business route. This type of privatization will negatively affect our job security and interests of those poor people. Statistics indicate that only 50 percent of people in India have bank accounts. The Centre should focus on educating rural people and cultivating banking habit among them instead of taking steps to merge banks or diluting voting rights. Merger of banks will de-stablise public sector banks, then corporate firms will start their
own banks and gobble up public savings. And that money will be misused for the benefit of few corporate honchos and not for the general public. Although Chindu counters them saying these banking reforms= new banks will be opened= more employment. (he expects 6,000 new bank branches and recruitment of 84,000 people next year.) Critiques also argue that It seems the whole exercise is not a comprehensive banking reform but just firefighting because 1) Foreign banks and domestic players put pressure on FM to help them get bank licenses. 2) RBI blackmails FM to get more powers. 3) FM comes with banking regulation bill. Prime objective of this bill seems to help private players get new banking licenses. Government should further relax the voting rights otherwise, Government will keep abusing its majority shareholding to further its own political goals and election agendas. e.g. in 2008, public sector banks were asked to forgo farmers loans (Debt Waiver scheme). Although Government promised to refund the loan-money to banks on behalf of farmers but it is not a good business practice.
Summary
The Banking regulation bill, 2011 was passed in the Winter session of parliament in Dec.2012. The salient features of the Banking regulation bill are (list not exhaustive) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. RBI can inspect books of associate business arms of a bank. RBI can supercede entire board of directors of a bank. RBI can conduct special audits of cooperative banks. Cooperative societies cannot carryout banking activities without license from RBI. A Depositor Education and Awareness Fund to receive money from deposit accounts not operated for more than 10 years. Increased the penalties and fines for violating Banking Regulation Act. Public Banks can obtain more capital via bonus shares and rights issue. Increases the voting rights of shareholders in Public and Private sector banks. Prior approval of RBI necessary if a person wants to purchase more than 5% shares of a bank. Banking Mergers and acquisition will fall under purview of CCI. Bank will have to pay penalty interest rate, if it doesnt maintain CRR on daily basis. Foreign banks exempted from stampduty payment for certain cases.
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