Government Mulls Amending Banking Law To Allow Option To Fully Divest
The government is considering amending the banking law to allow an option to fully divest its stake in public sector banks, according to three officials aware of the matter.
The Ministry of Finance is in discussions to introduce the pending Banking Laws (Amendment) Bill, 2021 in the upcoming monsoon session of parliament, the officials said on the condition of anonymity as the matter is not public yet. There have been deliberations to reduce the minimum government holding in public sector banks to zero from the current 51%, they said.
During the U.S. road shows for IDBI Bank and discussions with potential bidders, a common suggestion received was to sell the entire government's stake in state-run banks, one of the officials quoted above said. The government is considering those suggestions and weighing the pros and cons. The changes, if undertaken, will be through tweaks in the Banking Laws (Amendment) Bill, 2021, the official said.
According to the second official quoted above, a core group of secretaries comprising officials from the Department of Investment and Public Asset Management, Department of Financial Services, and Finance Ministry have met and discussed this proposal. This also has a go-ahead from the NITI Aayog. The proposal has been submitted to the Finance Ministry, the official said.
From there, the second official said, the proposal will be sent to the Cabinet Committee on Economic Affairs. Only after a green flag from them on the draft bill, can it be introduced in parliament. It's not necessary that the government will offload all its stakes in each and every state-run bank. This is a mechanism being cleared, the official said.
Earlier, the government was considering reducing its minimum holding to 26%, the second official said.
BQ Prime's emailed queries to the Ministry of Finance remained unanswered.
The Banking Laws (Amendment) Bill, 2021 was first listed in the winter session of parliament last year but was not introduced. The Lok Sabha's bulletin for legislative business on Nov. 23, 2021 read the purpose of the bill as “to effect amendments in Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980 and incidental amendments to Banking Regulation Act, 1949 in the context of Union Budget announcement 2021 regarding privatisation of two public sector banks”.
Finance Minister Nirmala Sitharaman in her 2021 budget speech had announced privatisation of two public sector banks without naming them. The Economic Times and Mint, however, named Central Bank of India and Indian Overseas Bank. The central government currently holds 96.38% in Indian Overseas Bank and 93.08% in Central Bank of India.
The government aims to raise Rs 65,000 crore through divestments in 2022-23 after it fell short to meet the target of Rs 1.75 lakh crore in FY22. So far this fiscal, it has raised Rs 24,543.4 crore, including Rs 20,516.12 crore from the LIC maiden issue.
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