An Exercise In Futility?

Yes, on paper, a large number of Indian companies will become vulnerable to takeover threats following the notification of the new code. But in reality, most of them should be feeling secure that the public sector financial institutions own the bulk of their shares and will be the deciding factor in the event of a predator eyeing them. And given the public sector financial institutions record, they will support the so-called existing management.

It is not that the financial institutions will be reluctant to sell off their shares in companies which become a takeover target. Who does not want to book good returns on his investments? Financial institutions would also like it, but only if they are permitted to do so. The pity is that even when financial institutions want to offload their shares in a company to make some profit, they are barred by their political bosses in the government on the specious ground that such an act would destabilise existing managements.

Are financial institutions meant to provide stability and security to the existing managements and owners of Indian companies ? That would appear so, if only the recently publicised recommendations of the Basudev Sen committee are an indication. The committee makes an obvious point: Financial institutions should be free to offload their shares in companies that are not doing well. Why not ? But does that require to be recommended by an expert committee? Isnt that common sense for every financial institution to follow ?

The reason why the Sen committee had to make such a recommendation is because such common sense is rarely followed by the financial institutions. Which is why the takeover code would remain only a piece of paper till financial institutions acquire the autonomy and the guts to decide on offloading their shares in a company purely on commercial grounds.

Will the finance minister P Chidambaram make some announcements imparting such autonomy to financial institutions in his Budget and thus make the takeover code really effective ?