The Rajya Sabha approved the long-awaited banking amendment bill as India seeks to attract foreign investment and increase the number of lenders.
However, the measures are expected to face steep challenges in their implementation at a time when confidence in the banking sector is low due to high valuations in the private sector and poor earnings at state-run lenders.
The bill, which will become law once signed by President Pranab Mukherjee, increases the ceiling on individual shareholders' voting rights at private sector banks to 26 percent from 10 percent and the limit to 10 percent at public sector banks.
A second key provision of the new law would lay the groundwork to issue new licences to non-banking financial companies in a bid to increase the number of lenders in India.
Despite the recent gains in banking shares and NBFCs expected to apply for new licences, analysts warned against expecting a flood of investments, while the RBI is expected to move slowly in issuing licences.
"Not everyone will be laughing all the way to a bank," Citigroup said in a note on Thursday.
The bill's main provision to increase shareholding rights are intended to attract individual investors, especially foreign ones, by giving them a bigger say in lending operations.
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