Economic legislations FM wants to revive

Insurance
The Insurance Laws (Amendment) Bill 2008
Objective: To deregulate the insurance sector through greater foreign presence and more
operational freedom for insurers
Proposals

• Raise foreign-equity ceiling in insurance companies from 26% to 49%

• Indian promoters need not reduce their stake to 26% over a period of time, as currently mandated

• Let insurers set premiums, making the Tariff Advisory Committee redundant

• General insurers have to offer third-party cover in motor insurance. Since this is a loss-making proposition, many insurers currently don't offer it to customers

• Allow entry of Lloyd's, the London-based insurance specialist

Impact
The greater leeway on stake holdings will allow promoters to adopt business strategies that suit them. So, Indian promoters can opt for a high stake or sell to foreign partners, who can hold more.
Legislation
Was introduced in the Rajya Sabha in September 2009. A Parliamentary committee is currently examining the bill.

LIC
The Life Insurance Corporation (Amendment) Bill 2009
Objective: Make LIC conform to the same regulatory requirements as other life insurers
Proposals

• Raise LIC's paid-up capital to `100 cr, from `5 cr

• Distribute 90% of LIC's annual surplus to policyholders, against 95% currently

• An actuary to investigate LIC each year on operational and solvency parameters, as against the current norm of once in two years

• Create a general reserve from surplus, which will help it offer social-security schemes and improve its solvency margin-how much buffer it has to meet exigencies. As of January 2010, LIC needed `50,000 cr, but had only `40,000 cr

• Government to offer sovereign guarantee, but review it periodically

Impact
Brings uniformity among life insurers in capital norms. Strengthens LIC by building it a greater buffer, but this comes at the cost of policyholders, who are likely to receive lower bonuses because of lower surplus distribution.
Legislation
Its earlier avatar died with the last Lok Sabha. Re-introduced in 2009 and a house panel presented its report to Parliament in March 2010.

Pensions
The Pension Fund Regulatory And Development Authority (PFRDA) Bill
Objective: Make the New Pension System (NPS) the first and last word in pension planning
Proposals

• The PFRDA has been the pensions regulator for about seven years, but through an executive order. So, it has to keep going back to the government for approval. Its aim is to provide old-age security to all workers, but its NPS hasn’t taken off. Instituting PFRDA as an act of Parliament will give it the sanctity, visibility and universality it needs.

Impact
Government finances should improve as the NPS shifts the onus from the employer to the employee. The NPS is a ‘defined contribution’ scheme-a person’s pension is based on her contribution and the returns earned. The old system was based on ‘defined benefit’, where the government paid a person a pre-decided sum for life.
Government employees will not get a pension handout. But they can invest their pension savings in equities. And non-government workers can access an investment plan.
Legislation
Introduced in March 2005, panel report in July 2005, but the bill died with the Lok Sabha in 2009. Needs to be reintroduced.


Private banks
Banking Laws Amendment Bill 2011
Objective: Give shareholders in private banks voting rights in proportion to their holding
Proposals
Although details of the bill haven't been released officially, statements from the government and finance ministry officials indicate the following:

• Shareholders in private banks will have voting rights in proportion to their equity shareholding. At present, voting rights are capped at 10%, irrespective of shareholding. In state-run banks, it is capped at 1%

• Reserve Bank of India (RBI) may get the power to inspect the books of financial conglomerates that might be given bank licences

• Will answer if the Competition Commission of India would have the powers to approve bank mergers

Impact
Gainers would be private banks such as Kotak Mahindra Bank and IndusInd Bank, whose promoters hold more than 10%. If the RBI removes the 10% cap, private banks can attract more investment, especially foreign.
Legislation
Likely to be introduced for the first time in the current session

SBI
The SBI (Subsidiary Banks) Amendment Bill, 2009
Objective: Speed up
decision-making in subsidiary banks of SBI
Proposals
The bill pertaining to the merger of the five remaining SBI associates with its parent is a separate one. This one pertains to decision-making at the subsidiaries. This bill shifts some powers from the RBI to the Centre, notably on capital, bonus shares, preferential allotment or private placement, appointment of chairmen, and supersession of the board of directors in public or depositers' interest.
Impact
The Centre having the final say will make for faster decision-making at the SBI arms
Legislation: Introduced in Lok Sabha in 2009. A Parliamentary panel is considering the bill and the government aims to pass this in the current session.


Working Capital
The Factoring And Assignment Of Receivables Bill, 2011
Objective: Enable companies to encash receivables and reduce working capital
Proposals
In factoring, a company due to receive `100 from a customer collects `95 from a factoring company. The factoring company collects `100 from the customer. Factoring companies have to pay stamp duty on sale/purchase of accounts receivables, which is a major disincentive for them. The bill does away with this requirement. It also proposes a central registry where any assignment of a receivable will be recorded.
Impact
No stamp duty for factoring companies and companies manage their working capital better
The legislation : Likely to be introduced for the first time in the current session


Debt Recovery
Bills to amend RDBFI Act 1993 and SARFAESI Act 2002
Objective: Who has the first right to recovering dues from a defaulter of loans ?
Proposals
Details are not available, but sources say a proposal looks to create ‘first charge holder’ on a borrower’s assets. Recovery of excise duty, customs duty and service charges will take
precedence over secured creditors.
The Recovery of Debts due to Banks and Financial Institutions (RDBFI) Act fast-tracked loan recovery. The Securitisation And Reconstruction Of Financial Assets And Enforcement Of Security Interest
(SARFESI) Act lets lenders sell distressed assets to recovery specialists.
Legislation : Government looking to introduce it in the current session


Corporate Sector
The Companies Bill, 2009
Objective:
Overhaul the legislation that governs companies by increasing focus on corporate governance, self-regulation, disclosures and enforcement
Proposals

• Stakeholders can initiate 'class-action suits'. Satyam Computer, for example, paid $125 million to its US shareholders for fraud, but nothing to Indian ones because this clause doesn't exist in India

• One-person company: Sole proprietors will be able to run businesses with limited-liability concept. A business loss will not mean unlimited personal liability

• Statutory auditors will be rotated and cannot do non-audit work for a client company

• CEO, CFO and the company secretary are designated as ‘key managerial personnel’, and can be named in lawsuits. So far, it's the chairman and MD

• Consolidated financial statements to be mandatory

• A dedicated law tribunal to bypass lower courts and handle offences under the bill, as well as liquidation and winding-up petitions

• Investigations under company law ssto be carried out by Central government, not by sector regulators. Statutory status to the Serious Fraud Investigations Office proposed

Impact
Companies will face fewer bureaucratic hassles while forming and running business. At the same time, stronger enforcement creates space for harassment. Shareholder and creditors benefit from greater transparency.
Legislation
The Companies Bill 2008, its predecessor, was introduced in October 2008, but it lapsed. Its 2009 version was introduced in August 2009. A Parliamentary committee has cleared it and it is waiting for a vote.