A high-level government committee is set to review the 26 per cent cap on voting rights for private shareholders in Indian banks under the Banking Regulation Act, 1949. The panel, which is yet to be formally constituted, aims to address the voting restriction that has hindered the privatization of IDBI Bank. Prospective investors have requested greater control aligned with their equity stakes.
Officials from the Reserve Bank of India and senior executives from large public sector banks are expected to be part of the committee. The terms of reference for the committee are anticipated to be finalized within the next three months. Any adjustment to increase the voting rights ceiling above 26 per cent would necessitate a legislative amendment to the Banking Regulation Act, possibly in the upcoming session of Parliament.
Presently, a promoter can legally own more than 26 per cent of shares in a private bank. However, their voting rights at shareholder meetings are restricted to 26 per cent of the shares. Foreign investors can hold up to 74 per cent of a private bank’s equity, with 49 per cent via the automatic route and the remainder with government approval. Nevertheless, their voting rights are capped at 26 per cent regardless of their shareholding.
The committee’s focus is on enhancing India’s banking sector’s global competitiveness, with a broader objective of enabling at least two Indian banks to enter the world’s top 20 by size.
