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[Economy] Banking Amendment Bill: Issues, Features, Problems, Reforms meaning explained
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. What is Banking Regulation Act? RBI Power # 1: Can remove entire Board of a Bank RBI Power # 2: Connected Lending Prevention RBI Power # 3: Unclaimed Accounts Public Banks Issue# 1: Need consolidation Public Banks Issue# 2: Need more investment Banks issue # 3: More voting rights for investors Foreign Banks Issue # 1: Stampduty Foreign Banks Issue # 2: Want to invest in Commodity Standing Committee problem Set: parliament 1. Parliament fight # 1: Commodity speculation 2. Parliament Fight # 2: Competition Monitoring: RBI vs CCI 12. Anti-Bill arguments Boring technical details intentionally skipped. I don’t do Ph.D on current affairs, neither should you.

What is Banking Regulation Act?
It is governs all public sector banks (SBI, PNB etc.) and private sector banks.(ICICI, HDFC etc.) in India.

Set : Finance Minister’s Office
Finance minister and RBI governor are holding a meeting. Yaar many new players want to open banks in India. But they can’t, because you’re not giving new licenses, So what is your problem? Well, I’m given powers to regulate public and private sector banks, under Banking RBI Regulation Act 1949.But those powers are not enough. governor So, I’m not going to give new bank-licenses to anybody, unless and until you get me more powers, by updating that Banking Regulation Act. Ok, I’ll move a Banking laws (Amendment) bill, to amend the necessary things.But first Chindu tell me what new powers do you need? Chindu

RBI Power #1: Can remove entire Board of a Bank
At present, if a Bank doesn’t play by my rules, I can remove its CEO or one or two

so It can pay 1) good interest rate to its bank account holders. to fix the mess. And this airlines company is making losses.X’s account. Pawn-Fisher airlines. to cover up those losses. RBI RBI Power #3: Unclaimed Accounts If Mr. bank should lend this money to the home. he can claim his money and that bank will have to pay RBI . education and business-loan seekers.Paraajay also opens Pawn-Fisher Mutual funds. it increases the Administrative burden on bank employees (=need to maintain files etc) Plus there is also an opportunity to commit a fraud. Ok agreed. directives or gives me false information. Mr. And or. yet the bank doesn’t take any action. people deposit their hard earned cash in it. bank will have to transfer its money in the “Depositor Education and Awareness Fund” And I’ll appoint a Committee to use money from this fund to create awareness. and money is transferred from bank deposits to mutual funds. then he’ll forge checkbooks signature or some other trick to withdraw money from Mr. but it also makes losses. 2) good dividends to its share holders. Anything else? RBI Yes. I must be given powers to check the records and account-books of those mutual funds. Although if Mr. Agreed. Chindu you’ll get the power to inspect those other business arms of a bank. Connected lending. These type of activities = Not good.X returns.Paraajay also owns another company. Similarly.Paraajay gets license to open a new bank. it is called “unclaimed bank account.And I’ll increase the penalty rates as well. bank will collapse and depositors’ money will be stuck. this Pawn-Fisher airlines gets the bank loan @market rates from the Pawn-Fisher Bank but it doesn’t pay EMIs regularly. Mr. I want powers to remove the entire board of directors. If a bank account is not operated for more than 10 years.X has not used his bank account for more than 10 years.Paraajay gives loans from Pawn-Fisher bank to Pawn-Fisher airlines @very low interest rate. What if the whole board of directors is involved in some mischief.” There are crores of rupees in such unclaimed bank accounts. car. RBI So. insurance and other companies associated with a bank.Anything else? RBI Second problem. But that is not enough. He opens Pawn-Fisher bank.directors. because in long term. so we must take some measure to tackle this issue. Ideally. for example some bank employee knows that Mr. who then pay interest and thus bank makes profit.I’ll get you the powers to supersede boards of the banks if any Chindu irregularities. I also want you to increase the rates of existing monetary penalties that I can impose on a bank if it disobeys my rules. So. But Mr. Bank must make good profit.X’s bank account is never checked. money from unclaimed bank accounts. Chindu What is that? RBI Power #2: Connected Lending Prevention Suppose Mr.

SBI chief Chindu Agreed. And before giving him approval. 4. I need you to simplify Banking Companies Acquisition and Transfer of Undertakings Act. Chindu (already explained click me)But you’ll have to take permission from Central Government + RBI if you want to do it. If a bank fails to maintain the prescribed minimum amount of Cash Reserve Ratio (CRR) on any day. I can demand penalty interest from that bank. Finance Minister. he’ll have to take permission from me. Anything else Yes one tea. including bonus shares and rights issue etc. SBI And to exclude bank mergers from the scrutiny of Competition Commission of India (CCI). Anything else. so if you play some mischief. I’ll take away your deposit.3000 crores. If any person wants to buy more than 5% shares of any bank. I want you to relax this. Yet if you make a list of top 5 biggest banks of the world. If primary cooperative societies want to continue their banking business. As you’re aware. I can conduct special audits of cooperative banks because they’re more liable to collapse and frauds. our name doesn’t figure. He too had an Chindu appointment with me. Chindu Ok so what do you want from me? There is need for consolidation in the banking sector so India can have two to three large public banks that can compete globally. 3. two samosas and four more powers 1. SBI Agreed. For this. RBI Chindu All agreed. to expand in a big way. PSU Banks Issue#2: Need more investment Right now the Public Sector banks cannot issue shares worth more than Rs. Public Banks Issue#1: Need consolidation Good morning Mr. SBI Banks issue #3: More voting rights for . Chindu Agreed. Ok agreed. we don’t have enough cash.000 branches. Ok then please leave my cabin and send the SBI chairman in. I can put conditions on him.him interest also. Bank mergers should need only approval of RBI. we’ve more than 11. Chindu Why is it so? This is because too many small public banks exist in India. So. they’ll have to get a license from me. because We need lot of investment. You can issue more shares. Finally. the ‘incoming-money’ SBI (from people to bank accounts) gets fragmented in so many bank branches. SBI is the largest public sector bank in India. RBI That’s enough for now. For example give me deposit worth Rs.

Foreign Banks Issue #1: Stampduty Chindu Ok what can I do for you? When I transfer my branches from the main company to the subsidiary company. But that alone will not bring investment in public or private sector banks. I must thank you for allowing us to issue bonus shares etc. SBI Chindu Agreed. Citibank Yes there is one more matter Foreign Banks Issue #2: Want to invest in Commodity Citibank Right now. Chindu Why? Because in shareholders’ meetings. . the shareholders have only 1% voting right SBI irrespective of number of shares held. Revised voting rights Voting rights (%) Bank Example Before After Private sector HDFC. ICICI10 26 Public sector SBI . changing name of company etc. Chindu Agreed. he too had taken Chindu appointment and is waiting outside. to allow the banks to invest in Commodities market.). So we need you to amend Banking regulation Act. voting is done on many issues (for example election of board of directors. the Banks can trade in shares. Only then foreign investors will be attracted to invest in Indian banks. Anything else. SBI No this is all for now. So they cannot heavily influence any Decision. But we (foreign banks) see huge profit making opportunity in that sector. But please send the chairman of Citibank in.investors Before moving on. A shareholder should have voting rights proportional to the number of shares held by him. Then you may leave. I Citibank don’t want to pay stamp duty. This should help me expand my business in India. We’ll revise the voting rights. bonds and currencies speculation but the Banking Regulation Act forbids them from trading in commodities. I need you relax these voting rights. Chindu Agreed. PNB 1 10 Chindu Anything else. But in case of public banks.

Standing Committee problem After a bill is introduced in parliament. because 1) FMC doesn’t have legal powers for compulsory registration of traders. 2) FMC doesn’t have power to impose huge financial penalty. no. for example Banking Regulation bill to Standing Committee on finance. They inspect the bill clause by clause. Competition Commission of India should not play any role in it. Set: parliament In the parliament. it goes to the Standing Committee of Parliament for particular subject.Ok I back off. beth jayiye. Opposition members are shouting slogans. which aims to empower FMC. So this bill must be sent back to standing Committee for review. What if some investors loose money because of this? The Forward Markets Commission (FMC) doesn’t have enough powers to safeguard them. No. Parliament is yet to pass Forward Contract Regulation Act (FCRA) Amendment Bill. especially with those Foreign banks. Chindu No. send the bill back to Standing Committee. no. if bill goes back to standing Committee.”(as usual) Parliament fight #1: Commodity speculation Chindu What is the problem? The share-market and mutual funds = regulated by SEBI. put forward their recommendations. then this bill must be sent back to the Standing Committee for re-consideration”. Chindu added some new provisions in it. so opposition parties got angry “this wasn’t part of the original bill. no. no. regulated by Forward Market Commission (FMC) Chindu So? So. And more importantly. then it’ll delay the . it would lead to high-risk speculative trading. so there is no need to send this bill back to standing Committee. if bill goes back to standing Committee. And then voting is done. you added the this Commodity provision in banking bill. Not acceptable. if you want to add new provisions. Parliament Fight #2: Competition Monitoring: RBI vs CCI Friends. In case of Banking regulation bill. I remove this provision. after it was reviewed by Standing Committee. So. after the parliamentary Standing Committee on Finance put its report. if banks invest in commodity futures.Similarly Commodity market= Oppn. Oppn. Again this is new provision added after Standing Committee gave Opposition its report. I also propose that only RBI’s permission should be necessary for Bank Chindu mergers and acquisitions. (as usual) Meera Kumar says “beth jayiye. kripyaa shaant ho jayiye. it’ll take lot of time.

I remove this provision. But it is mere lip service. Because new corporate banks/foreign banks won’t have any interest in serving poor people.CCI will have the power to investigate and clear mergers and acquisitions in the banking sector. Once he signs it.) The Bank unions give following Anti-Bill arguments: Government claims “more banks = more branches = more poor people get banking facilities = financial inclusion”. Rajya Sabha also passed the bill. (although SBI employees did not join the strike. If mergers are allowed then rural branches will close down and/or rural banking operations will be outsourced via contractual business route. The Centre should focus on educating rural people and cultivating banking habit among them instead of taking steps to merge banks or diluting voting rights. Statistics indicate that only 50 percent of people in India have bank accounts.Ok I back off. This type of ‘privatization’ will negatively affect our job security and interests of those poor people. Now this bill file will goto President.Chindu implementation. Merger of banks will de-stablise public sector banks. Anti-Bill arguments In December. this bill will become a “Law”. employees of public banks went on strike. then corporate firms will start their . Lok sabha passed the bill.

9. [Economy] Fiscal Cliff: Meaning. Bank will have to pay penalty interest rate. Explained 4.g. Banking Mergers and acquisition will fall under purview of CCI. And that money will be misused for the benefit of few corporate honchos and not for the general public. Public Banks can obtain more capital via bonus shares and rights issue. Prior approval of RBI necessary if a person wants to purchase more than 5% shares of a bank. Government will keep abusing its majority shareholding to further its own political goals and election agendas. RBI can conduct special audits of cooperative banks. [Economy] Collective Investment Scheme (CIS) and Multi-Layer Marketing Frauds 8. Although Government promised to refund the loan-money to banks on behalf of farmers but it is not a good business practice. Government should further relax the voting rights otherwise. A “Depositor Education and Awareness Fund to receive money from deposit accounts not operated for more than 10 years. [Economy] GMR-Maldives Airport Controversy. Reasons. Increases the voting rights of shareholders in Public and Private sector banks. Prime objective of this bill seems to help private players get new banking licenses. Increased the penalties and fines for violating Banking Regulation Act. 2011 was passed in the Winter session of parliament in Dec. public sector banks were asked to forgo farmers’ loans (Debt Waiver scheme). 3. Implications on US and Indian Economy explained 5.000 people next year. 11.own banks and gobble up public savings. 5. Functions. [Economy] National Investment Board (NIB): Meaning. 12. RBI can supercede entire board of directors of a bank. Summary The Banking regulation bill. Foreign banks exempted from stampduty payment for certain cases. 7. IFC. (he expects 6. Cooperative societies cannot carryout banking activities without license from RBI. Allocation of Natural Resources explained 7. e.000 new bank branches and recruitment of 84. in 2008. Implications. EPFO Angle: Meaning. 6. [Economy] High GDP and High Corruption: Cause or Consequence? 9. Spectrum refarming. RBI can inspect books of associate business arms of a bank. if it doesn’t maintain CRR on daily basis. [Economy] Capital Goods and Capital Gains: Meaning. The salient features of the Banking regulation bill are (list not exhaustive) 1. Although Chindu counters them saying “these banking reforms= new banks will be opened= more employment. Previous Posts 1. Withholding Tax. 4. 3) FM comes with banking regulation bill.) Critiques also argue that It seems the whole exercise is not a comprehensive banking reform but just firefighting because 1) Foreign banks and domestic players put pressure on FM to help them get bank licenses. Explained 3. Concept. 8. [Economy] 2G scam. Anti-Arguments 6. Sistema controversy. AAI: Meaning. Reason. [Economy] Bretton Woods and Fixed Exchange Rate system : Meaning Explained . Difference Explained 2. 10. 2) RBI blackmails FM to get more powers. 2. [Economy] Infrastructure Debt Funds (IDF).2012.

2012 | Category: Economy .December 22nd.

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