Banking Amendment Bill faces fresh hurdles

The Banking Laws Amendment Bill, 2011, through which the government seeks to expedite the process of issuing new licences for banking across the country, is facing fresh hurdles from the Opposition parties as well as the Reserve Bank of India.

On Monday, the Opposition created an uproar in the Lok Sabha when the Bill was being taken up for consideration as it wanted the legislation to be referred back to the Parliamentary Standing Committee on Finance for fresh consideration.
Senior BJP leader and Chairman of the Committee Yashwant Sinha said that three key provisions were incorporated in the proposed legislation after the panel gave its report. "It becomes a new Bill. Bring it again to the Standing Committee," Sinha said.

Along with the BJP, Left parties and TMC also insisted the Bill be sent back to the Committee for vetting afresh. Amid the din, Union Finance Minister P Chidambaram stood up and tried to respond, but in vein. The House was adjourned initially for 30 minutes and later adjourned for the day as the objections continued.
Sinha said the newly introduced provisions will allow banks to invest in speculative trading, such as futures.

The RBI too been against allowing banks to enter the sensitive area of futures trading as there is no autonomous and independent commodity regulator in the country. Though banks are not allowed to trade in commodity futures, they support the clearing services and also provide fund and non-fund based services to exchange members for managing their working capital requirements.

It is also not in favour of giving out licences without suitable amendments to the law. Many in the government, including the Prime Minister’s Economic Advisory Council Chairman C Rangarajan, are of the view that new licences can be issued according to current banking regulations and the law could be modified in due course.

Industrial houses such as Larsen & Toubro (L&T), Anil Dhirubhai Ambani Group, Aditya Birla Group and Shriram Group have evinced interest in setting up banks.
Since September, when the first whiff of the noise about banking laws amendment was made by the finance ministry, stocks like L&T Financial Holdings have run up significantly. Banking shares on Monday too opened quite high on the anticipation that the Bill will be passed this winter session.