Khushi
The initiation has been made by the government with inter-ministerial consultations to draft the legislative changes required for privatisation of public sector banks (PSBs).
According to the official sources, “the plan is to opt for amending the relevant laws in one go, so that the process of PSB privatisation is not hindered by legal hurdles”.
The consideration within the government is taking place on whether to repeal the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980 (nationalisation Acts).
The source said, “the voting rights cap of 10% for a non-government shareholder irrespective of his/her shareholding is among the key constraints identified”.
“The stipulation in the Banking Regulation Act, 1949, that no shareholder of a banking company – PSB or private sector bank – can exercise voting rights more than 26%, is also being reviewed,” the source further added.
Earlier, while representing Budget 2021-22, Finance Minister Nirmala Sitharaman had announced privatisation of Public Sector Banks (PSBs) as part of disinvestment drive to garner Rs 1.75 lakh crore.
“Other than IDBI Bank, we propose to take up the privatization of two Public Sector Banks and one General Insurance company in the year 2021-22,” she had said.
The privatisation of government owned 5-6 banks, including Axis Bank, ICICI and IDBI Bank, was smooth, but they were not nationalised banks.
According to the sources, “before repealing the bank nationalisation laws, a procedure has to be developed for transition of the PSBs from under these Acts to the Companies Act”.
The precedents for this are being studied as no nationalised bank has seen such transition yet, legislative action with regard to Nationalisation Acts and Banking Regulation Act are expected in the monsoon session of Parliament after consultations and seeking legal opinion.
“Providing higher voting rights to the promoters will be the right step towards a more liberal banking system. The banks would need to walk the extra mile by adopting the right governance mechanism. This is required to convince the RBI to change its current stance which is towards limiting promoter control,” said Shravan Shetty, MD – Financial Services, Primus Partners.
The NDA government is trying to liberate the hold of the public sector by encouraging private players to acquire government assets. Recently, it repealed the law governing BPCL to pave the way for its privatisation.
The main purpose behind privatising PSB is to create a few strong banks to support the rising credit desire of the economy, help reverse a drop in economic growth and cut costs through greater synergy.