Finance Minister P. Chidambaram introduced two bills on banking reforms in the Lok Sabha Friday, including one to remove the 10 percent cap on voting rights of foreign banks in their Indian counterparts.

The first bill - that seeks to amend the Banking Regulation Act, 1949 - will also require foreign banks to get prior approval of the Reserve Bank of India before expanding their holding in Indian banks beyond five percent.

The bill seeks to remove the lower and upper caps on statutory liquidity ratio to give more freedom to commercial banks to manage their liquidity.

It will seek flexibility for the central bank to prescribe prudential norms for allowing banking companies to issue preference shares and consolidate the supervision of banks in line with international best practices.

In his budget speech Feb 28, Chidambaram had promised legislative changes in banking laws to help the central bank implement its road map for reforms in the banking system in terms of competition, consolidation and convergence.

The second bill seeks to amend the Reserve Bank of India Act, 1934, to remove, among other clauses, the caps on cash reserve ratio to facilitate more flexible conduct of the monetary policy.

The amendments are also intended to help the central bank to lend and borrow securities by way of repos or reverse repos - contracts for the sale and future repurchase of a financial asset, most often treasury securities.

The two bills have been referred to the parliamentary standing committee on finance for its report to enable their passage in the monsoon session.

--Indo-Asian News Service