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Companies can set up banks now

By BS Reporter in Mumbai
September 02, 2006 13:54 IST
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The Tarapore committee has pitched in for allowing industrial houses to promote banks, a stance contrary to the Reserve Bank of India's guidelines on the ownership of private banks.

It also wants the voting rights of shareholders in banks to be in accordance with the Companies Act.

The committee has said industrial houses should be allowed to hold stakes and promote banks on merit, and non-banking finance companies should be encouraged to convert into banking entities.

It wants the minimum stake of the government/RBI in the State Bank of India and other public sector banks reduced to 33 per cent from 51 per cent. This recommendation will not alter the public sector character of these banks.

The panel also wants more institutions to be encouraged to set up private sector banks, given the success of banks like HDFC Bank and UTI Bank.

It has sought a single banking law to govern all commercial banks, including public sector banks, which are currently governed by the bank nationalisation Acts. All banks should be incorporated under the Companies Act to provide a level playing field, it says.

The panel has recommended setting up of a government-RBI panel to expeditiously prepare the financial system for the challenges of Basel II, and the move to a fuller capital account convertibility.

The committee feels the proposed transfer of SBI ownership from the RBI to the government should be kept on hold in the backdrop of the need to strengthen the capital base for Basel II and full capital account convertibility.

It, however, has not specified the time-frame for keeping the proposal for transfer on hold. This will help meet the increased capital requirements for a sizeable segment of the banking sector for the ensuing period, it says.

Issues like corporate governance in banks, powers of the boards of PSBs, remuneration issues, hiring of personnel with requisite skills in specialised functions, and succession planning needed early attention, it has said.

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BS Reporter in Mumbai