Bank bill passed in Lok Sabha

Bank bill passed in Lok Sabha August 23, 2006 NEW DELHI (Reuters) - The Lok Sabha passed a bill on Wednesday that seeks to allow state-run banks to raise funds through private placements and preferential shares. The banking companies bill, however, restricts banks from diluting the government's holding below 51 percent while selling shares, Finance Minister Palaniappan Chidambaram said in a debate in parliament. At the moment state-run banks in India are allowed to raise capital by selling shares to the public. Many are planning to raise more funds to meet stringent Basel-II regulations by March 2007 and to sustain high loan growth. The bill still has to pass in the Rajya Sabha and get presidential approval before it becomes law. It requires banks to have government and Reserve Bank of India (RBI) approval for private placements and preferential issue of shares. Banks would have to follow RBI guidelines on the amount and class of preference shares issued - perpetual, redeemable or irredeemable. It also seeks to restrict the powers of preference shareholders. A preference shareholder will not have voting rights of more than 1 percent of the total voting rights of all such shareholders. On appointment of directors to bank boards, the bill requires banks to have central bank clearance and gives the RBI power to lay down criteria for selecting directors in state-run banks. The bill also allows the government to appoint an administrator for up to one year if it considers the affairs of a bank have been conducted in a way which is detrimental to depositors. The bill also allows the government to dismiss the board of directors.