Jaitley hints at cutting govt stake in IDBI Bank below 50%

Says, draft bankruptcy code will be put out next month

Finance Minister Arun Jaitley on Monday pitched for giving freedom to public sector banks (PSBs) from political pressures in decision making and said the government was taking all efforts to professionalise all personnel-related issues at these. The minister had said in a TV interview last week that the government would give more autonomy to IDBI Bank and an Axis Bank-like structure could be considered for the public sector lender.

When Axis Bank commenced business, it was owned by UTI and a clutch of public sector insurance companies.

Ownership was 100 per cent in the public sector, but it was still awarded a private sector bank licence.

The IDBI Bank stock had shot up 17 per cent following the statement. Asked about further clarification on the issue, Jaitley said, “We will let you know when the government decides.” He was speaking on the sidelines of the annual general meeting of Indian Banks’ Association.

 

Addressing the bankers, the finance minister said the government was planning to reduce stake in PSBs to 52 per cent. While government owns 76.5 per cent stake in IDBI Bank, the lender is not a nationalised bank as it was formed much after bank nationalisation and is governed by the Companies Act — not applicable to other PSBs.

A committee headed by P J Nayak, formed by the Reserve Bank of India to review governance issues in banks, had suggested the government bring down its stake in PSBs below 51 per cent. It had also suggested all the existing acts governing PSBs such as the Nationalised Bank Act etc, be repealed and all public-sector lenders be brought under the Companies Act.

 

Government stake in some PSBs is around 80 per cent and this move will enable lenders to raise equity capital from the market, which will be required to meet the Basel-III norms and to make provisioning for bad loans. State-run banks have seen a sharp rise in bad loans in the past three years amid a slowing economy. Although the finance minister was not categorical in his comments about IDBI Bank, he emphasised these banks should be given independence from political interference and their decisions be based only on banking merits. “We have appointed a panel headed by Justice A P Shah to find options of hiring best quality talent,” he said.

He also said the government would release the draft bankruptcy code next month. The banking regulator has repeatedly emphasised on the need for such a law, to deal will wilful defaulters.

“The code draft will be put out by early next month and would be taken to Parliament from there. Resolution of disputes with relation to contracts law will be passed by the end of the fiscal,” he said.