THE RELIEF OVER the scrapping of the 10 per cent cap on voting rights in private banks quickly ebbs at the prospect of the 10 per cent discretionary limit imposed by the Reserve Bank of India on equity purchases in private banks. In a manner, the Union Cabinet decision (which needs Parliament okay) is, for the moment, bereft of any immediate benefit to players keen on buying or selling private bank stocks. The Cabinet has not favoured public sector banks with the policy largesse and the emerging strong body of private stakeholders in these banks after the public issues will have to bear with the needless inequity.

To promote diversified ownership, the RBI decided in February to scan any purchase or transfer of equity in a private bank by a foreign outfit or purchases by residents of up to 5 per cent stake. It did not want any single entity or a group to hold more than 10 per cent of the paid-up capital. Foreign banks could only buy into weak private banks listed by the RBI for restructuring. Foreign and Indian players have been lobbying in vain for easy entry norms into the banking sector but the Finance Ministry and the RBI have taken recourse to a forbidding tangle of rules and regulations to maintain the status quo. The Government will continue to hold 51 per cent stake in nationalised banks, said the Prime Minister, Dr Manmohan Singh, after taking charge last year. Officials can argue that the strong demand for public issues by banks belies the concern over free voting rights. But that surely cannot be sufficient reason for denying free voting rights to the public holding up to 49 per cent stake. Perhaps, the stakeholders of ICICI Bank will be preening; for it could be the sole Indian bank with 74 per cent foreign equity to offer common shareholders the privilege of free voting rights. For this they will have to thank Mr K. V. Kamath for having the stereoscopic sight to turn ICICI Ltd. into a bank by merging it with ICICI Bank and getting on board a large number of foreign investors to keep ICICI Bank out of the extant rules on foreign investment.

New Delhi has not done anyone any favour by doing away with the limit on voting rights in private banks as that is the norm in other sectors. Most private and public sector banks are hungry for funds, having to service a growing economy and also abide by Basel II norms. To keep stakeholders (including the government) happy, the RBI has relaxed the norms for dividend payouts by banks, though one wonders if they were necessary in the first place. Should the RBI be setting rules on dividends when bank managements could well do the job, having on board officials from the Finance Ministry and the central bank? Giving the RBI the freedom to set the statutory liquidity ratio and the Cash Reserve Ratio adds to its steering power even as banks today hold excess government securities on their books. Reacting to the news, banking stocks have turned active on the bourses. For a sustained surge, the economy has to get out of the shadow play of intrusive lawmakers.

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