Wednesday, February 16 2005 15:18 Hrs (IST) - World Time -

New Delhi: Stepping up attack over the "unnecessary" banking reforms, the Left parties have charged the United Progressive Alliance (UPA) Government with deliberately meddling with the independent role of the Reserve Bank of India (RBI) in fixing norms on Foreign Direct Investment (FDI) and voting rights.

"The Government has not only disregarded the views of RBI, it is forcing the RBI to dilute its guidelines and thereby weaken the regulatory framework itself," the four Left Parties - Communist Party of India-Marxist (CPM), Communist Party of India (CPI), Republican Socialist Party (RSP) and Forward Block - said in a note.

It is clear from the RBI's guidelines that despite the National Democratic Alliance (NDA) Government's decision to raise the FDI limit in banking to 74 per cent, it had chosen to remain extremely cautious about further opening up and allowing foreign and domestic investors to acquire large shareholding in a bank and exercising proportionate voting rights, the note said.

"It appears that despite RBI issuing elaborate guidelines restricting foreign ownership in the private sector banks, the RBI has finally accepted the Government's position and is now going to issue fresh guidelines on the issue," it said.

Citing Finance Minister P Chidambaram's statement in Mumbai that foreign banks could pick up 10 per cent stake every year and acquire control in 3-4 years, it said that the observed tendency among some promoters to divert a substantial share of its deposits into "speculative" activities could increase financial "fragility".

The financial liberalisation had precipitated crisis in several countries, it said quoting World Bank's former Chief Economist Joseph Stiglitz who had written "capital account liberalisation was the single most important factor leading to" East Asian crisis.