India plans to retain a cap on voting rights for large shareholders in domestic banks, two sources said, signalling New Delhi’s attempts to liberalise the financial sector and draw more foreign investment, will stay limited in scope.
Reserve Bank of India (RBI), the country’s banking regulator, initiated a number of steps to unwind complex regulations in recent months and has permitted foreign lenders to pick up large stakes in domestic banks.
The government is also planning to more than double the foreign-investment cap in State-owned lenders to 49%, Reuters reported last week. However, rules for voting rights will not be eased yet, they said.
As per current rules, a single shareholder cannot hold more than 26% voting rights in a private bank, even if their ownership is higher than that. For government-owned banks, that cap is 10%.
Excessive control issue
India’s Federal Finance Ministry and the RBI discussed increasing the cap on voting rights to give large shareholders more say in strategic decisions but decided against it to avoid excessive control, said the first source.
The government wants safeguards like a cap on voting rights of 26% for a single shareholder to stay to avoid sole decision-making, said the first source.