Government May Soon Introduce Bill For Public Sector Banks’ Privatization - Here’s What It Means

The government is likely to introduce a bill in the upcoming monsoon session of Parliament to make amendments to facilitate the privatization of state-run banks, as per an ET report.?

One of the amendments under consideration is allowing the central government a complete exit from banks being privatized, as per what an official aware of deliberations reportedly said.?

The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, requires the central government to hold at least 51% of public sector banks. The earlier thinking was that the Centre should retain at least a 26% stake during privatization and that this could be brought down gradually. But now it seems the bill may allow the government to completely exit.

"The bill will provide an enabling mechanism. We might bring it in this session and then iron out the other issues," said another official, adding that the changes are based on discussions with potential investors during recent roadshows for the IDBI Bank, as per the ET report.

The finance ministry is also in discussions with India’s central bank Reserve Bank of India (RBI), on ownership and controlling stakes issues relating to privatization. Promoters can currently hold a maximum 26% stake in private banks.

PTI

The first official cited above reportedly said, "We have received inputs from potential investors, merchant bankers, and even industry. We will incorporate changes if required to make the stake sale process faster and with less regulatory hurdles."

In the Budget for FY22 that was presented on February 1, 2021, Finance minister Nirmala Sitharaman said the government will privatize two public sector banks and one general insurer, adding that the necessary legislative amendments would be introduced in the ensuing budget session.

The government had listed the Banking Laws Amendment Bill, 2021, in the winter session of Parliament that concluded on December 22, 2021, but it wasn't introduced. The bill had proposed "amendments in Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980 and incidental amendments to Banking Regulation Act, 1949".

Which Banks Would Be Privatized?

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IDBI Bank's privatization process is already underway. The bank is incorporated under the Companies Act, 1956, and legal amendments are not needed for its privatization, the ET report stated.

The government is reportedly expected to invite expressions of interest (EoIs) for strategic divestment of IDBI Bank by the end of next month. It holds a 45.48% stake in IDBI, while Life Insurance Corp. of India (LIC) owns 49.24%, as per ET.

In April 2021, think tank Niti Aayog had given its recommendations on the banks that should be privatized to the disinvestment department. Central Bank of India and Indian Overseas Bank have reportedly been shortlisted, but the names have not been made public.? ?

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