In a bid to integrate India with the global financial system, the government on Friday said the foreign direct investment ceiling in banking sector would be hiked from 49 per cent to 74 per cent to enable global banks to set up shop in India.

The FDI liberalisation in the banking sector, proposed by Finance Minister Jaswant Singh in his Budget speech, comes a day after the Group of Ministers recommended a hike in sectoral caps in telecom, aviation, airport, petroleum refining and marketing.

"For facilitating the setting up of subsidiaries by foreign banks as well as for inviting investment in private banks, this FDI limit will be raised to at least 74 per cent," Singh said in Parliament on Friday.

He said the Banking Regulation Act of 1949 would be amended to remove the restriction of 10 per cent voting right irrespective of the shareholding.

The government also encouraged mergers and acquisitions in the banking sector by extending tax exemption under Section 72A of Income Tax Act to banks, which intend to go for mergers and acquisitions.

The government would also come up with legislations to enable smooth functioning of Credit Information Bureau set up to address the menace of non-performing assets of banks.

The government also directed all banks to extend credit to agriculture and SSI sectors at a band of two per cent below and above prime lending rates.

This facility was being offered by only State Bank of India till date.

PTI