India clears way for bigger foreign investment in banks

Updated 18 December 2012
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India clears way for bigger foreign investment in banks

NEW DELHI: The Indian Parliament cleared a path for more foreign investment in the banking sector by approving a bill to increase shareholders' voting rights, after dropping a controversial clause allowing banks to trade in commodity futures.
Prime Minister Manmohan Singh's government is racing against the clock to pass reforms economists say are needed to breathe life into Asia's third-largest economy, which is headed for the worst year of growth in a decade.
Progress so far has been slow.
The banking bill is the only piece of major reform legislation to be passed in a parliament session again disrupted by protests and shouting matches. The session ends on Thursday.
Finance Minister P. Chidambaram told Parliament the government was abandoning efforts to pass a bill this session to open India's cash-strapped insurance sector to foreign investment — a move eagerly watched by investors.
Another bill aimed at easing land acquisition for infrastructure and mining projects was also deferred to next year.
The banking bill will increase shareholders' voting rights to 26 percent from 10 percent in private sector banks, making investment more attractive to foreign players.
The bill will now move to the upper house of Parliament for voting tomorrow, where it is also likely to be passed as it is backed by India's two biggest parties.
The legislation clears the way for more corporate houses to run banks by enabling the Reserve Bank of India (RBI) to issue new bank licenses. That will boost the government's drive to expand access to financial services in a country where more than half the 1.2 billion population is without a bank account.
"The raising of voting cap will have a positive impact in attracting funds as it will help foreign investors to have more say in banks," said Jagannadham Thunguntla, head of research at brokerage firm SMC Global Securities.
The main opposition party Bharatiya Janata Party (BJP) threw its weight behind the bill after the government dropped a clause allowing banks to trade commodities futures amid fears it could lead to risky, speculative trading.
"It will lead to better investor interest in the smaller private sector banks. It is also a sentiment booster, and it will pave the way for the Reserve Bank of India to issue new banking licenses," said Sujan Hajra, chief economist at Anand Rathi Securities in Mumbai.
India has struggled for years to reform and liberalize state-dominated sectors such as banking, insurance and pensions due to political opposition, including from within the ruling Congress party.
The banking bill will give the RBI greater regulatory oversight over local banks and the ability to overrule boards when the banks are facing financial difficulties. The RBI had demanded more oversight as a precondition to issuing new banking licenses.
The bill also enables the government to raise voting rights in state banks such as the State Bank of India to 10 percent from just 1 percent now, acceding partially to foreign investors' demands to have more say in Indian banking.
The bank employees unions, reluctant that any control is ceded, have strongly opposed this move for years and are set to strike on Thursday in protest.

The bill will allow foreign banks to convert their Indian operations into local subsidiaries or transfer shareholding to a holding company of the bank without paying stamp duty.
Foreign banks have long sought these changes to the law which they say would encourage them to expand their operations in India. Under current laws, foreign banks such as Citibank and Standard Chartered Plc have to pay 20-30 percent tax as capital gains and stamp duty when transferring branches to a new legal entity.


Malaysia sets up task force to probe 1MDB scandal

Updated 33 min 36 sec ago
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Malaysia sets up task force to probe 1MDB scandal

  • 1Malaysia Development Berhad was set up in 2009 ostensibly to promote the development of the Malaysian economy
  • Huge sums of money from the fund are believed to have been funneled round the world in a complex web of transactions

KUALA LUMPUR: Malaysia on Monday set up a task force to probe allegations that billions of dollars were looted from sovereign wealth fund 1MDB in an audacious fraud overseen by ousted leader Najib Razak.
New Prime Minister Mahathir Mohamad led a reformist alliance to a shock victory at the May 9 polls over Najib’s coalition, which had governed Malaysia uninterrupted for over six decades.
A major reason for the success of 92-year-old Mahathir was public disgust at allegations of endemic corruption among the country’s ruling elite, and in particular an explosive scandal surrounding state fund 1MDB.
The fund, 1Malaysia Development Berhad, was set up in 2009 ostensibly to promote the development of the Malaysian economy.
But it is alleged that Najib, his family and cronies looted the investment vehicle in a massive fraud stretching from the Cayman Islands to New York, with stolen funds used to buy everything from real estate to artworks.
Since Najib’s ouster, Malaysians have been gripped by a series of police raids on properties linked to the ex-leader, which have yielded a stash of hundreds of luxury handbags believed to belong to his despised wife Rosmah Mansor, as well as suitcases stuffed with cash and jewels.
Mahathir — who first served as premier from 1981-2003 and came out of retirement to take on Najib — had pledged to reopen probes into 1MDB.
The new task force will be charged with seizing back assets and pursuing legal action against those suspected of breaking the law in relation to the fund, said the prime minister’s office.
“The government hopes the setting up of this task force, comprising a multi-agency enforcement unit, will help restore the dignity of Malaysia that has been tainted by the 1MDB kleptocracy scandal,” said Mahathir’s office.
The task force will include representatives of the anti-graft agency, the police and the attorney-general’s office. Some of those on the body were part of previous probes into the controversy but were pushed out by Najib’s regime as he moved to shut down domestic investigations.
Several current and former senior government officials will lead the task force, including Abdul Gani Patail, the former attorney-general who was removed from his post in 2015 as he was leading investigations into 1MDB.
Huge sums of money from the fund are believed to have been funneled round the world in a complex web of transactions, and the task force’s remit will include reaching out to law enforcement agencies in other countries, including the US, Switzerland, Singapore and Canada, according to Mahathir’s office.
The US Statement Department alleges in civil lawsuits that $4.5 billion was stolen from 1MDB and sent to the US, where it was spent on funding the Hollywood film “The Wolf of Wall Street” and lavish purchases including Monet and Van Gogh paintings.
Najib and 1MDB have consistently denied any wrongdoing.
The ex-leader, 64, sought to mount a fightback over the weekend, insisting he had not stolen any public money during a speech to hundreds of supporters in the constituency where he has been an MP for decades.
Mahathir, a former mentor of Najib who turned on him over 1MDB, is determined to breathe new life into democratic institutions that suffered under the ex-premier’s increasingly authoritarian rule and usher in a new dawn for the country.
In a speech to civil servants Monday, Mahathir said that Malaysia’s debt had ballooned to more than one trillion ringgits ($251 billion).
“We must realize that before our country was respected, but now it is no longer respected,” he said.