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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