Mr.B.J.Ved

Gearing Up for Banking ReformsGearing Up for Banking Reforms

• BRA 1949 – Amendment after more than 60 years

• Bill Passed in lower house of Parliament - Yet to complete formal process

of enactment

• Why?:-

1) Indian Banks adhere to international best practices

2) Play on level playing field

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Major Remifications For Financial SectorMajor Remifications For Financial Sector

1) Paving way for issuance of new banking licenses

2) Attracting more foreign funds into banking sector

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It Encompasses

1) The Banking Regulation Act 1949

2) The Banking Companies (Acquisition & Transfer of Undertaking ) Act

1970

3) The Banking Companies (Acquisition & Transfer of Undertaking ) Act

1980

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ProvisionsProvisions

1) Mandatory requirement for obtaining approval from RBI of entities /

persons seeking to acquire share capital in a bank in excess of 5% to

ensure not only that control of banks is available to fit & proper person but

also that interest of banking industry & public is protected

2) Authorises RBI to halt transfers to proposed transferee & where transfer is

registered, not entitling transferee to exercise voting rights in any

company meeting

3) Simplifies the definition of “Approved Securities” to encompass those

securities issued by Central or State Govts. Or other securities as

specified by RBI

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Provisions (Contd…)Provisions (Contd…)

4) Provides RBI with more effective control of the industry by increasing

penalties to crores from thousands

5) Provides RBI with more flexibility in its efforts to mange liquidity and rein

in inflation via Cash Reserve Ratio (CRR)

6) Empowers RBI to grant banks adhoc exemptions from CRR provisions

7) Provides for aggregating funds in dormant accounts into single fund which

can be used to promote interest of depositors. Proposes establishment of

“Depositor Education and Awareness Fund” comprising funds from non-

operational accounts remained unclaimed for mote than -10- years.

However, depositors / customers can claim funds from banks even after

expiry of -10-years period

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Provisions (Contd…)Provisions (Contd…)

8) Under RBI Act 1949, RBI has power to remove a director or any other

officer of the banking company. Such power is inadequate if the entire

board of directors is working against the interest of depositors & banking

industry. Bill proposes to confer power to RBI to supercede those boards

for not more than -12- months during which Chairman, Managing Director

and other directors shall vacate the office from effective date with no

compensation from the date of termination.

9) RBI will have sufficient powers to inspect accounts and business of

associate enterprise that have significant influence in making financial or

policy decision.

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• However, in the original version of the bill, RBI sought through insertion of

a clause to retain control over matters relating to the amalgamation,

merger, reconstruction or acquisition of banks which would have otherwise

been determined by the Competion Act 2012. but in the face of stiff

opposition politically and in larger interest of other regulators, the proposed

clause was eventually dropped.

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