Reversing Bank Nationalisation

Reversing Bank Nationalisation

The passage of the Banking Laws (Amendment) Bill in the winter session of parliament marks a turning point.  The Manmohan Singh government has undone what the Indira Gandhi government did.  The Bank Nationalisation Act nationalised all the major private banks in 1969. Many of these banks were linked to industrial houses.  The 2012 amendment to the banking laws paves the way for the entry of corporate houses into banking.  Thus, the wheel has turned full circle.

The Manmohan Singh government has effected this retrograde step after repeated efforts since 2005.  During the first term of the UPA government, this move could not succeed because of the firm opposition of the Left parties.

The Banking Laws (Amendment) Bill sought to achieve two goals. Firstly, the Bill, as originally drafted, wanted to do away with 10 per cent cap on voting rights for the shareholders.  This was necessary as the NDA government had notified that 74 per cent FDI would be allowed in Indian private banks. Prime Minister Manmohan Singh reaffirmed this commitment.  Since the existing law provided for only 10 per cent voting rights, it was an obstacle to a foreign bank investing in a 74 per cent stake and not getting commensurate voting rights. It was in order to facilitate foreign banks taking over Indian private banks that the Bill proposed to do away with the cap on voting rights.

The government argued that there are several weak private sector banks and investment of foreign capital would help to revive the banks.  The Left parties had, at that time, countered this and asked the government to identify the banks which are weak and public sector banks should be encouraged to acquire them.

The Banking Regulation (Amendment) Bill of 2005 lapsed since the 14th Lok Sabha was dissolved in 2009.  The government introduced the Bill again in 2011 in the 15th Lok Sabha.  The Standing Committee on Finance chaired by the BJP MP Yashwant Sinha recommended that the...