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Govt decides to dilute holding in PSU banks to 33%

Our Correspondent in New Delhi

The government on Thursday decided to amend the banking legislation to enable it to bring down its stake in public sector banks to 33 per cent, from the present level of 51 per cent, without losing control over such institutions.

The amendment to the Banking Companies Acquisition and Transfer of Undertakings Act 1970 and 1980 is aimed at helping public sector banks to mobilise resources from the market, if necessary, as the government is not in a position to meet the capital adequacy norms of banks.

The public sector character of the banks 'will lot change' after the amendment as the government would continue to appoint chief executive officers and directors of such banks, Parliamentary Affairs Pramod Mahajan said after the Cabinet meeting.

"Further, we are not allowing anybody to take more than one per cent of the share in any of the banks in which the government dilutes its equity," he said.

Asked whether at would be possible for a group of persons to form a cartel and buy up majority stakes in such banks, Mahajan said that he would convey this apprehension to the Finance Minister.

All such concerns could be taken care of at the time of drafting the amendment Bill, he stated.

Some of the changes that the amendments will help bring in are:

The restriction on free transferability of shares held by the government would be removed.

The existing conditions impose a restriction that the paid-up capital of nationalised banks should not fall below 25 per cent. The amendment will remove this restriction.

The number of wholetime directors would be increased from two to four.

The existing provisions allow the nomination of a central government official as a director on the board of one nationalised bank. This condition will be modified to allow his nomination on the board of not more than two banks.

The new amendment will delete the present mandatory requirement of nominating an RBI nominee, financial institution nominee and chartered accountant on the board of nationalised banks.

The new amendment will now enable shareholders to discuss, adapt and approve the annual accounts and the balance sheet at the annual general meeting.

The amendment will also enable banks to transfer unclaimed dividends of over seven years to the Investor Education and Protection Fund.

The new amendment will permit conversion / transfer of existing banks into companies under the Companies Act 1956 as and when the government share holding goes below 50 per cent in such banks.

The amendment will enable the suppression of board of directors of weak and potentially weak banks by the central government based on RBI recommendations. It will also enable the constitution of a bank-specific Financial Restructuring Authority.

These amendments will help banks to raise capital from the market.

The government was also not opposed to referring it to a select committee for ensuring that the government retained its control over such banks at any cost, Mahajan said.

The equity dilution amendment would not cover the State Bank of India.

While 14 commercial banks were nationalised in 1969 and six more in 1980 following which the government acquired majority or entire equity of such banks.

The entire paid up capital in these banks were held by the central government till 1994 when the Act was amended to enable banks to get market access to meet their additional requirements.

But even after this amendment, only six of the nationalised banks went to the market to mobilise resources.

This showed that even the proposed amendment may not lead to dilution of government holding in such banks, Mahajan said.

Further, the move was entirely different from the current divestment process in public sector undertakings like Indian Airlines, Air-India or other such institutions.

In the case of banks, ''We are not looking for any strategic partners.'' The resource mobilisation would be only through the public offer, he explained.

Any misgivings and apprehensions which still remained would be taken care of by Parliament, the select committee and the finance minister, Mahajan said.

''The government has no ulterior motives'' in deciding to go ahead with the bill, a day after the nation-wide strike by bank employees to protest against what they called the privatisation move," he said.

The bill would also seek to increase the number of those on the governing body of public sector banks, including the SBI and its subsidiaries, Exim Bank, NABARD and the National Housing Bank.

The bill is a part of the government's decision to undertake second generation financial reforms in the banking sector. However, sources maintain that despite reduction of government equity to 33 per cent in nationalised banks, the public sector character of banks will not change.

Banking operations in the country had come to a grinding halt on Wednesday when public sector bank employees struck work protesting against the government's decision to reduce its equity in PSU banks from 51 per cent to 33 per cent.

The bill, piloted on the basis of recommendations made by Narasimham Committee on Banking Sector Reforms, is also said to be on the lines of the promises made by the government to the World Trade Organisation and the International Monetary Fund that the Act will be notified before the end of the current financial year.

Additional inputs: UNI

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