Centre may continue to hold at least 26% stake in public sector banks

The Centre may continue to hold at least 26 per cent stake in public sector banks (PSBs) that are being considered for privatisation, sources aware of the development said. Currently, the government is looking at privatising two banks.

At present, the government has to hold 51 per cent in PSBs at all times, according to the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. Now, the Banking Laws (Amendment) Bill 2021, which will provide for reducing the government's minimum shareholding in PSBs to 26 per cent, is set to be introduced in the upcoming session of Parliament.

The reduction of the government’s floor shareholding to 26 per cent in PSBs will enable institutional and public investment, in turn helping the exchequer with better receipts, sources said. This would also help in privatisation and meeting the disinvestment targets, besides reducing lenders’ dependence on the government for capital infusion, they added.

Although the government would keep its shareholding limited to 26 per cent, it may not bring it down to that level at one go. The quantum of stake reduction in these banks would be decided while finalising the contours of the transaction.

According to the amendments being proposed, the legislation would empower the government to make a scheme for privatisation of PSBs in consultation with the Reserve Bank of India (RBI). The amendments also seek to replace provisions of the Companies Act, 1956, with the Companies Act, 2013, for conditions for auditors of PSBs, among others.

The legislation will also have provisions regarding the disqualification of directors. It will also include terms and conditions for service of the chairman, whole-time directors, and board of directors. Besides, these new sections would be included to make it mandatory for every director to disclose interests in corporates.

The Bill will also insert clauses to determine the remuneration and compensation for whole-time directors and officers carrying out material risk-taking and control function of new privatised banks. It would also include amendments to bring about changes for retirement of directors and to facilitate a scheme for board of directors of new privatised banks.

To protect decision making of bank executives, a new provision will also be included in the law to protect them for action taken in good faith.

The amendments proposed by the government will help in setting up a more professional board with flexibility to bring expertise at the management level, and offer better remuneration, an official said.