Amended legislation paves way for new banks next year

Approval to the long-awaited Banking Laws Amendment Bill by Parliament towards the end of 2012 has paved the way for enhanced banking space and may see entry of new players and mergers and acquisitions in the sector in the coming year.

The development injected new life into the sector which has been struggling to cope with rising bad debts and pressure on the bottom line in the wake of global slowdown that also affected the performance of the Indian corporate sector.

During 2012, most of the banks continued their fight to contain their non-performing assets (NPAs). NPAs or bad loans of the public sector banks stood at Rs 1.43 lakh crore as of September, 2012, up from Rs 1.12 lakh crore as of March 31, 2012.

In the first two quarters of the current fiscal 2012-13, the banks referred a record number of 74 Corporate Debt Restructuring (CDR) cases, involving a total debt amount of Rs 40,000 crore, for restructuring.

At the same time, at least 35 banks have already reported an increase in their gross NPAs (Non-Performing Advances) from the levels recorded at the end of last fiscal, 2011-12.

To further open up the sector, the amended banking legislation also allows entry of the corporates into the banking sector.

Other important features of the bill, include increase in the cap on restrictions on voting rights and empowering RBI to collect information and inspect accounts of associate enterprises of banking companies.

The Bill also empowers RBI to supersede the Board of Directors of banking company and appointing administrator till alternate arrangements are made.

After the passage of the Bill by Rajya Sabha, Finance Minister P Chidambaram had asked the RBI to speed up the process of issuance of new banking licences. RBI had already issued the draft guidelines for issuance of new bank licenses.