Tuesday, December 11, 2012

Bumpy road ahead for Banking Bill in Lok Sabha

http://www.thehindubusinessline.com/industry-and-economy/banking/bumpy-road-ahead-for-banking-bill-in-lok-sabha/article4188249.ece


The Banking Laws (Amendment) Bill, which hit the Opposition wall on Monday, was not taken up on Tuesday either despite it being on the list of business to be transacted in the Lok Sabha.
Instead, most part of the Lok Sabha session on Tuesday focused on the Walmart row, with the Opposition parties cutting across party lines demanding a joint parliamentary committee probe.
But the crucial issue that came in for some talk in the corridors of power was the way in which the Banking Laws (Amendment) Bill was stopped in its tracks by the Opposition.
The point of contention is whether a new clause, considered far-reaching, can be introduced by the Government without it being referred to the Standing Committee.
The Finance Minister had sought to introduce a clause that would eventually allow banks to deal in forward contracts of commodities. Currently, banks are allowed to deal in forward contracts only for currencies and not in any goods.
The proposed clause will amend the Banking Regulation Act to enable the Reserve Bank of India to issue directions that will permit banks to participate in forward contracts, subject to certain conditions.
The BJP wanted the new clauses to be sent to the Standing Committee on Finance before being introduced as part of the amendments, the reason being that the Bill was earlier referred to the Standing Committee and the new clauses would tantamount to bringing a completely new Bill.
However, Finance Minister P. Chidambaram thought otherwise. He pointed out that most of the Standing Committee’s recommendations have been accepted. It did not make sense to send the Bill back, he said on Monday, just for the addition of one clause.
While the jury is still out on the right procedure, the new clause that has triggered this controversy definitely needs some thought before being implemented.
An explanation is proposed to be added to specify that forward contracts would take the definition as spelt out in Forward Contracts Regulation Act — implying that forwards can be entered on commodities and other goods.
“The proposed clause on permitting banks to do forward contracts will divert public money into risky areas of speculative banking. Forward contracts are inherently risky and speculative. This is not desirable when banks are dealing with public money,” said C.H. Venkatachalam, General Secretary, All India Bank Employees Association.
He said the new clause should be referred to the Standing Committee for further scrutiny.

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