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Section 1 – State Bank of India (Subsidiary Banks Laws) Amendment Act,2007

State Bank of India (Subsidiary Banks Laws) Amendment Act,2007

Section 1. Short title and commencement

STATE BANK OF INDIA (SUBSIDIARY BANKS LAWS) AMENDMENT ACT,20071

[Act No. 30 of 2007]

[June 18,2007]

An Act further to amend the State Bank of Saurashtra Act,1950, the State Bank of Hyderabad Act,1956 and the State Bank of India (Subsidiary Banks) Act,1959

Be it enacted by Parliament in the Fifty-eighth Year of the Republic of India as follows:-

Prefatory Note-Statement of Objects and Reasons.-The State Bank of the Saurashtra Act,1950, the State Bank of Hyderabad Act,1956 and the State Bank of India (Subsidiary Banks) Act,1959 has been in force for more than four decades. The said three Acts contain provisions regarding constitution of the State Bank of Saurashtra, the State Bank of Hyderabad and other Subsidiary Banks of the State Bank of India (being the State Bank of Patiala, the State Bank of Bikaner and Jaipur, the State Bank of Indore, the State Bank of Mysore and the State Bank of Travancore), their capital, management and control and other connected matters.

2. There are more than twenty-eight lakhs shares held by private shareholders (other than the State Bank of India) of the four subsidiary banks, i.e., the State Bank of Bikaner and Jaipur, the State Bank of Indore, the State Bank of Mysore and the State Bank of Travancore. The shareholders of these four subsidiary banks are facing certain difficulties due to certain restrictions imposed under the State Bank of India (Subsidiary Banks) Act,1959. These restrictions, inter alia, include, (a) lack of dematerialization facility for the shares (b) difficulty in free transferability (c) restrictions on individual holdings of shares and their voting rights etc. The shareholders, at the annual general meetings of these four banks, have been expressing, time and again, the difficulty faced by them due to such restrictive provisions in the said Act.

3. The Basel Capital Accord, the current international framework on Capital Adequacy, was adopted in the year 1988 by many banks worldwide and in the year 1992 in India. Afterwards, over the past several years, the Basel Committee on Banking Supervision has worked on a new accord for international convergence on capital standards and released the latest version of the new Basel Capital Accord known as Basel II in June 2004. With the introduction of the new capital adequacy framework (Basel II), all the banks (including subsidiary banks of the State Bank of India) may be required to increase their capital base to meet 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. In order to remove the difficulties faced by the shareholders of the subsidiary banks and to facilitate increase of the capital of the subsidiary banks to enable them to raise resources from the market and also to comply with certain guidelines issued by the Securities Exchange Board of India (SEBI) under the Securities Exchange Board of India Act,1992 and the Depositories Act,1996, it has become necessary to amend the State Bank of the Saurashtra Act,1950, the State Bank of Hyderabad Act,1956 and the State Bank of India (Subsidiary Banks) Act,1959. The Bill proposes to amend the said three Acts, inter alia, to-

(a) increase the authorised capital of subsidiary banks to five hundred crores and divide the authorised capital into shares of one hundred rupees each or of such denomination as may be decided by the subsidiary banks, with the approval of the State Bank of India (SBI);

(b) allow the subsidiary banks to issue share certificates of such denomination as may be prescribed by regulations made by th e SBI with th e approval of the RBI to the existing shareholders;

(c) fix the issued capital of subsidiary banks by the SBI with the approval of the RBI and also decide, with the approval of the SBI, on the denomination of shares of subsidiary banks;

(d) allow the subsidiary banks to raise issued capital by preferential allotment or private placement or public issue in accordance with the procedure as may be specified by regulations made by the SBI with the approval of the RBI and to issue preference shares in accordance with guidelines framed by the RBI;

(e) allow the subsidiary banks to issue, with the approval of the SBI and RBI, bonus shares to the equity shareholders;

(f) allow reduction of the SBI’s shareholding in the subsidiary banks from fifty-five per cent to fifty-one per cent;

(g) allow the subsidiary banks to accept share monies in instalments, make calls, and forfeiture of unpaid shares and their re-issue;

(h) provide for nomination facility in respect of shares held by individual/joint shareholders of the subsidiary banks;

(i) remove the restriction on individual shareholdings in excess of two hundred shares and increase the percentage of voting rights of shareholders (other than the SBI) from one per cent to ten per cent of the issued capital of the subsidiary bank concerned;

(j) restrict the voting rights of preference shares of subsidiary bank only to resolutions directly affecting their rights and also restrict the preference shareholder to exercise voting rights in respect of preference shares held by him to a ceiling of ten per cent of total voting rights of all the shareholders holding preference share capital only.

(k) allow the chairman of the SBI to nominate an official of the SBI as the Chairman of the Board of a subsidiary bank, with the approval of the RBI;

(l) omit the provisions relating to nomination of official of the RBI on the Board of Directors of subsidiary bank and to make provisions for nomination of additional director by the RBI as and when considered necessary, in the interest of banking policy and depositors’ interest etc.;

(m) increase the number of elected directors representing shareholders of subsidiary bank limited to a maximum of three subject to different percentage of public ownership;

(n) specify the qualification regarding eligibility criteria including “fit and proper” criteria for elected directors of subsidiary bank and to confer power upon the RBI to remove elected directors who are not fit and proper and also to allow the Board of Directors of a subsidiary bank to co-opt any other person who is fit and proper in his place;

(o) confer power upon the RBI to supersede the Board of Directors of subsidiary banks in public interest or for depositor’s interest or for securing proper management of the subsidiary banks on the recommendation of the SBI and to appoint an administrator and a committee to assist the administrator;

(p) allow transfer of unpaid or unclaimed dividend of subsidiary 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;

(q) entitle the shareholders present in the annual general meeting to “adopt” the balance-sheet.

5. The Bill seeks to achieve the above objectives.

——————–

1. Received the assent of the President on June 18,2007 and published in the Gazette of India, Extra., Part II, Section 1, dated 19th June,2007, pp. 1-11, No. 35

(1) This Act may be called the State Bank of India (Subsidiary Banks Laws) Amendment Act,2007.

(2) It shall come into force on such date1 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.

——————–

1. W.e.f. 9-7-2007

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