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Section 1 – State Bank of India (Amendment) Act,2010

State Bank of India (Amendment) Act,2010

Section 1. Short title and commencement


[NO. 27 OF 2010]

[24th August,2010]

An Act further to amend the State Bank of India Act,1955

Be it enacted by Parliament in the Sixty-first Year of the Republic of India as follows


1. Received the assent of the President on August 24,2010 and published in the Gazette of India, Extra., Part II, Section 1, dated 25th August,2010, pp. 1-9, No. 36

Prefatory Note Statement of Objects and Reasons.

The State Bank of India Act,1955 (hereinafter referred to as the SBI Act) was last amended in 1993 to enable the State Bank of India to access capital market. While State Bank of India can access capital market by issuing equity shares or bonds, or by both equity share and bonds, there is no express provision under the SBI Act to enable the State Bank to issue preference shares and also bonus shares.

2. The Basel Capital Accord, the current international framework on Capital Adequacy, was adopted in the year 1988 by many banks worldwide and by India in the year 1992.

Thereupon the Reserve Bank of India had introduced a set of norms for income recognition, provisioning and also for capital adequacy in relation to risk weighted assets. These norms were designed to put the financial accounting and prudential standards of Indian banks on a sound footing in line with current international practices.

3. The Basel Committee on Banking Supervision has worked on a new framework for international convergence on capital standards and in June 2004 related the new capital adequacy framework known as Basel II.

With the introduction of the Basel II, all the public sector banks including the State Bank of India and its subsidiary banks would be required to increase their capital base to meet the minimum requirements. Achievement of the capital adequacy norms under Basel II will improve the basic financial health of the banking system and thus improve its international credibility, since banks in many countries are also in the process of adopting these standards.

4. The State Bank of India (Amendment) Bill,2006 was introduced in the Lok Sabha on the 18th December,2006 which was examined by the Standing Committee on Finance. The said Bill lapsed due to the dissolution of the 14th Lok Sabha.

5. It is proposed to introduce the State Bank of India (Amendment) Bill,2010 broadly on the same lines of the lapsed Bill incorporating therein certain recommendations of the Standing Committee on Finance.

6. The State Bank of India (Amendment) Bill,2010 seeks to provide for enhancement of the capital of the State Bank by issue of preference shares, to enable it to raise resources from the market by public issue or preferential allotment or private placement. The Bill also aims to provide for flexibility in the management of the bank. The Bill proposes to amend the, SBI Act, inter alia, to

(i) increase the authorised capital of the State Bank of India to Rupees Five thousand crores divided into shares of ten rupees each or of such denomination as may be decided by the Central Board, with the approval of the Reserve Bank and also enable the Central Government to increase or reduce the authorised capital in consultation with the Reserve Bank;

(ii) allow the issued capital of the State Bank to be raised by preferential allotment of share or private placement or public issue or rights issue in accordance with the procedure as may be prescribed by regulations with the previous approval of the Reserve Bank and the Central Government, and the preference shares may be issued in accordance with guidelines framed by the Reserve Bank;

(iii)allow the State Bank to issue bonus sha
res to t he existing equity shareholders with the direction of the Central Government;

(iv)allow reduction of shareholding of the Central Government from fifty-five per cent to fifty-one per cent consisting of the equity shares of the issued capital;

(v)allow the State Bank to accept share monies in instalments, make calls, and forfeiture of unpaid shares and their re-issue;

(vi)provide for nomination facility in respect of shares held by an individual or joint shareholders;

(vii)restrict the voting rights of preference shareholders of the State Bank only to resolutions directly affecting their rights and also restrict the preference shareholders, other than the Central Government, to exercise voting rights in respect of preference shares held by them to a ceiling of ten per cent of total voting rights of all the shareholders holding preference share capital only;

(viii)allow the Central Government to appoint not more than four managing directors in consultation with the Reserve Bank;

(ix)abolish the post of vice-chairman;

(x)enable a sole shareholder or a first named holder of shares (when held jointly) of a nominal value of at least five thousand rupees to contest the election for the directorship of State Bank;

(xi)specify the qualifications for election of directors of the State Bank and to confer powers upon the Reserve Bank to notify eligibility criteria for such directors;

(xii)allow the Reserve Bank to appoint additional directors as and when considered necessary in the interest of banking policy and depositors’ interest;

(xiii)confer power upon the Central Government to supersede the Central Board in certain cases on the recommendations of the Reserve Bank and to appoint an administrator for the period during which the Central Board stands superseded;

(xiv)allow the State Bank to hold Central Board meetings through video conferencing or such other electronic means as may be prescribed by regulations;

(xv) allow transfer of unpaid or unclaimed dividend of the State Bank up to thirty days to “unpaid dividend account” and after seven years to the “Investor Education and Protection Fund” established under Section 205-C of the Companies Act,1956;

(xvi)entitle the shareholders present in an annual general meeting to “adopt” the balance sheet;

(xvii)to amend sub-section (3-A) of Section 20 of the SBI Act to restrict the tenure of Workmen Employee Director/Officer Employee Director to three years. 7. The Bill seeks to achieve the above objects.

(1) This Act may be called the State Bank of India (Amendment) Act,2010.

(2) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint:

Provided that different dates may be appointed for different provisions of this Act and any reference in any such provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision.

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