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India clears way for bigger foreign investment in banks

Published on Dec 18, 2012 11:29 PM

NEW DELHI (REUTERS) - The Indian parliament cleared a path for more foreign investment in the banking sector by approving a bill to increase shareholders' voting rights, after dropping a controversial clause allowing banks to trade in commodity futures.

The banking bill will increase shareholders' voting rights to 26 per cent from 10 per cent in private sector banks, making investment more attractive to foreign players.

The legislation clears the way for more corporate houses to run banks by enabling the Reserve Bank of India (RBI) to issue new bank licences. That will boost the government's drive to expand access to financial services in a country where more than half the 1.2 billion population is without a bank account.

The bill will also give RBI greater regulatory oversight over local banks and the ability to overrule boards when the banks are facing financial difficulties. The RBI had demanded more oversight as a precondition to issuing new banking licences.

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