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Banking reform bill introduced - Govt drops move to reduce stake in banks to below 51%:

The United Progressive Alliance (UPA) government has introduced the Banking Companies (Acquisition and Transfer of Undertakings) and Financial Institutions Laws (Amendment) Bill 2005 in Lok Sabha (parliament).

This bill was originally moved by the National Democratic Alliance (NDA) Government but it lapsed due to dissolution of the 13th Lok Sabha. However the new government has omitted the amendment relating to reduction of prescribed minimum shareholding of the Central Government in nationalised banks from 51 per cent to 33 per cent in the original bill.

Main points of the Banking reform bill:

1. Government seeking higher representation on Bank boards.

2. Setting up of a Financial Restructuring Authority (FRA) for troubled Banks.

3. The Bill provides for equitable representation of Government directors on the bank boards by reducing the maximum number of directors elected by shareholders other than the Government from six to three.

4. In this bill it is proposed that to increase the number of whole-time directors from two to four. Moreover, the provision of mandatory nomination of directors by the Reserve Bank of India and financial institutions is being omitted, while the RBI would have powers to appoint one or more additional directors whenever the regulator senses that a bank has run into trouble.

5. The Bill provides that the Government can supersede the board of a bank if it consistently flouts laws and regulations, after which it would be placed under the FRA.

6. No strategic sales, if Govt holding in banks to stay above 51%.

It has been stated in the bill that out of the 19 nationalised banks, the Government's holding in 15 banks that have accessed the capital market ranges from 51 per cent to 77 per cent. In the other four banks, it holds 100 per cent holding.

Government holdings in Oriental Bank of Commerce and Dena Bank have already reached 51 per cent after public issues earlier in the year.

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