Bill to reduce govt holding in SBI approved

The Lok Sabha today approved a bill that will allow the State Bank of India (SBI) to reduce government holding in the bank to 51 per cent from 55 per cent and raise funds from the capital markets.

"The public sector character of the SBI will not be diluted...The bill aims to provide for flexibility in the management of the bank," Finance Minister Pranab Mukherjee said while piloting the amendment bill.

The SBI (Amendment) Bill 2010, which also seeks to raise the authorised capital of the bank from Rs 1,000 crore to Rs 5,000 crore, was approved by the House despite Opposition from the Left Parties.

The government currently holds 59.41 per cent in SBI and the amendment will provide headroom to the bank to raise funds from the capital market through issue of fresh equity, preference shares and also reward existing shareholders through bonus shares.

The shares of SBI on Bombay Stock Exchange rose by 3.09 per cent to touch a new high of Rs 2,581 a piece.

The amendment bill, Mukherjee said, "Will provide for enhancement of the capital of State Bank by issue of preference shares, to enable it to raise resources from the market by public issue or preferential allotment or private placement."

Responding to questions raised by the members, he said the Indian banking sector had managed to survive the meltdown as the regulatory mechanism of Indian banking was very strong and their exposure to this kind of volatile market situation was limited.

While SBI can access capital market by issuing equity shares or bonds, there was no express provision under the Act to enable the bank to issue preference shares or bonus shares, he added.

The SBI Act, 1955, was amended in 1993 last to enable it to access capital market.

The amendment bill, Mukherjee said, provides for reduction of government equity "from 55 per cent to 51 per cent consisting of the equity shares of the issued capital."

The bill will also empower the Central government to increase or reduce the authorised capital in consultation with the Reserve Bank of India.

The bill will empower the government to appoint up to four managing directors, abolish the post of vice-chairman, and enable shareholders with at least Rs 5,000 worth of shares to contest the election for directorship.

It will help the SBI in complying with the Basel Capital Accord, the current international framework on Capital Adequacy adopted in 1988 and Basel Committee on Banking Supervision's new framework, called Basel-II, under which public sector banks are required to increase their capital base to meet minimum requirements.

The UPA-I had first brought the bill in Lok Sabha in December 2006 and it was referred to a Parliamentary Standing Committee. But the bill lapsed due to the dissolution of the House.

The present bill, which will now go to the Rajya Sabha, is broadly on the same lines as the lapsed one, but incorporates certain recommendations of the Standing Committee.

Among the members who participated in the debate include Nishikant Dubey (BJP), Bhakta Charan Das (Cong), Gorakh Nath Pandey (BSP) and Shailendra Kumar (SP). The bill was opposed by CPI(M) member Anirudhan Sampath and Prashanta Majumdar (RSP).