* State Bank of India halts trading in onshore spot forex
* Parliament likely to approve some banking rule changes on
* Two-day strike shuts most public sector banks across the
* Rule changes would allow central bank to issue more
(Updates likely timing of parliamentary approval in paragraph
By Suvashree Dey Choudhury and Manoj Kumar
MUMBAI/NEW DELHI, Aug 22 Bank transactions and
some market operations were hit in India after about one million
bank employees began a two-day strike on Wednesday to protest
against reforms that will give investors more clout in the
tightly controlled sector.
The strike involving mainly staff of state-run banks, who
make up around 70 percent of employees in the sector,
underscored the opposition to investor-friendly financial
reforms that have been pending for years.
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 expand their presence in Asia's
third-largest economy by acquiring smaller regional banks.
In what is being seen by analysts as a positive step
towards reform, parliament is likely in coming days to approve
amendments to banking laws that include raising the limit on
shareholders' voting rights in public and private banks.
"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, head of the New
Delhi-based RPG Foundation think tank.
"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."
India has struggled to reform and liberalise key sectors
such as banking, retail and insurance, partly because of
political opposition and fears of the exploitation of domestic
interests by foreign investors.
VOTING RIGHTS CAP
The strike, which forced No. 1 lender State Bank of India
(SBI) to halt trading in onshore spot foreign exchange
markets, comes as another blow to an economy facing its worst
slowdown in almost a decade.
If parliament approves the changes on Thursday, the limit on
the voting rights of shareholders in private sector banks will
be raised to 26 percent from 10 percent now, and to 10 percent
for state-run banks from just 1 percent.
The move would give overseas as well as Indian financial
institutions and fund managers more say on the functioning of
the banks and help improve operations and transparency, analysts
"From the market point of view, it is good because FIIs will
have a lot more say," said Jagannadham Thunuguntla, equity head
at Delhi-based brokerage SMC Capital, referring to foreign
institutional investors (FIIs). "Probably, we may expect more
FIIs buying in the banking sector."
The proposed changes to banking regulations would also help
the central bank issue more banking licences, which would boost
the prospects of many Indian and foreign firms who are looking
to tap the country's under-penetrated financial sector.
While the changes will meet a key demand of foreign
investors, they are unlikely to trigger fresh private
investment, largely because the 20 percent cap on foreign
ownership in public sector banks will not change.
TRADING HIT, BRANCHES SHUTTERED
The United Forum of Bank Unions, which heads all nine bank
employees and officers unions, said the strike had been called
to oppose reforms that could ease mergers rules and allow more
private capital into the sector.
It was not immediately possible to assess the financial
losses due to the strike, though trading volumes in government
bonds were thin at 23.6 billion rupees ($425 million) as against
the average 40-50 billion rupees in the first hour of trade.
SBI halted trading in onshore spot foreign exchange markets
as its settlement operations' staff did not show up for work,
Bank branches were shut in many cities were shut as
thousands of employees, many brandishing banners, shouted
slogans against the proposed reforms.
"Unless the government relents or the government gives some
positive response, we are going to intensify our agitation,"
said J.P. Sharma, vice president of the All India Bank Employees
Many public sector banks in Connaught Place, the commercial
hub of the capital, New Delhi, saw only two or three employees
trickle in for work early on Wednesday, while many joined their
colleagues outside the branches.
"Both sides suffer. The public is inconvenienced and we also
lose our daily clients," said Shashi Sharma, chief manager of
state-run Punjab National Bank as he sat in a dimly
lit and vacant office.
($1 = 55.5 Indian rupees)
(Additional reporting by Swati Bhat, Archana Narayanan and Neha
Dasgupta in MUMBAI and by Annie Banerji and David Lalmalsawma in
NEW DELHI; Writing by Sumeet Chatterjee; Editing by John
Chalmers and Alex Richardson)