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FINANCE > Strike of 1 million hits Indian banking sector, forex market

MUMBAI - Reuters

The banking sector in the world’s second largest country by population is halted by a strike against reforms that ease the way for private lenders. The walkout continues today

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A bank employee shouts slogans while taking part in a rally during a two-day strike in Kolkata. About one million Indian bank employees walked out yesterday. REUTERS photo

A bank employee shouts slogans while taking part in a rally during a two-day strike in Kolkata. About one million Indian bank employees walked out yesterday. REUTERS photo

About one million Indian bank employees began a two-day strike yesterday to protest against reforms that could ease mergers rules and allow more private capital into the sector, hitting banking transactions and some market trading operations.

The strike, involving mainly the staff of state-run banks that make up around 70 percent of the sector, came a day ahead of an expected parliamentary approval to some changes in rules to allow bigger role for investors in banks.

Foreign ownership of Indian public sector banks is capped at 20 percent, and some global banks have been pitching for a hike in their holding limit to help them expand their presence in Asia’s third-largest economy by acquiring the smaller regional banks.

India has struggled to reform and liberalize key sectors such as banking, retail and insurance, partly because of political opposition and fears of the exploitation of domestic interests by foreign investors.

State Bank of India halts

The strike, which forced the country’s top lender State Bank of India to halt trading in onshore spot foreign exchange markets, comes as another blow to the economy that faces its worst slowdown in almost a decade.

“Any move towards increasing the private sector role in the banking sector is a big fear for the unions and that makes them oppose it,” said D.H. Pai Panandiker, the head of New Delhi-based think tank the RPG Foundation.

“The changes in the banking laws can improve the health of the banks quite considerably,” he said. “The unions fear if the government continues with the reforms their positions will weaken and it will lead to job losses.”

The Indian parliament is likely to approve today amendments to banking laws that include raising shareholders’ voting rights limit in private banks to 26 percent from 10 percent, a senior government source said.

The amendments, which were earlier expected to be approved on Wednesday, will meet a major demand of foreign investors seeking more say in the country’s financial system, though it is unlikely trigger fresh private investment in the sector and the 20 percent cap on foreign ownership in public sector banks will not change.

Analysts say the approval by parliament of the banking legislation amendments would be seen as a positive step by investors and would ease fears of “policy paralysis” in a government that has seen its free market reforms stall.

August/23/2012

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