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Consolidation within the banking sector
is likely to face a setback with the change of guard at the Centre. The proposed amendments to the Banking
Regulation Act included relaxation in the voting rights beyond 10 per cent. Though equity holding by foreign investors is
permitted up to 74 per cent in Indian private banking companies, voting rights
are restricted to 10 per cent. Several
foreign banks have, in the past, sought amendments to the statute for expanding
operations within the country through acquisitions or mergers with domestic
private sector banks. Bankers said that most of the potential
foreign investors have now put the brakes on acquisition proposals, without any
clear signals from the new Government. They
added that opposition to these amendments had in the past come from the Left. They also expect a halt in the Government's
commitment to reducing its equity stake in public sector banks progressively to
33 per cent. This commitment was given in the Budget two years back. Subsequently, public sector banks have raised
equity from the markets bringing down Government stake. However, even this proposal had been
opposed by the Left-led unions, who have repeatedly spoken in protest against
Government equity dilutions. In
February this year, Left unions had called a nationwide strike opposing
privatisation and dilution of equity in the public sector. As a
result of the opposition, the second round of public issues proposed by the
public sector banks for strengthening of their equity capital is expected to be
delayed. " Since they (Left parties) are now part of the new
Government, without their express clearance there is no way equity dilutions or
divestments can take place," top bankers said. Besides, with the stock markets facing
extreme volatility, new issues are not expected to get the desired pricing. Instead, most of the recapitalisation would
take place only through the tier two route and through recovery of some of the
bad assets. These recoveries would be used to strengthen the reserves, they
added. They said the second round of
the voluntary retirement scheme pushed by some of the public sector banks would
also likely be shelved. |
