Financial Reform Options

Two ideas are being floated in this regard. One is to speed up privatisation by first going in for private placement through the book building process. The feeling is that now is not the time for making large fixed price public issues. Instead, it may be possible to make successful placements through the book building route among wholesale investors who are not afflicted by the same aversion to the capital market as small investors are. Once this is done, a major part of the entire process, price discovery, will have been completed. This will put the government in a much better position to correctly price public issues, which will then have a good chance of succeeding. Though this route is logical, it has not been tried for a long time as the first attempt to sell public sector shares by auctioning them in bundles to the highest wholesale bidders ended up in controversy. As book building is an accepted practice that is now permitted domestically, the old controversies need not resurface, though bundling

 

shares remains a bad idea because it makes pricing non-transparent.

But what if the system cannot wait for this two-step disinvestment process of a smaller private placement followed by a larger public offering? What if the financial sector has to go quickly down the professional route and not have to wait for privatisation first? For this, the via media of a financial holding company has been mooted. Instead of the government directly holding the shares of banks and financial institutions, these could be held by the holding company which could in turn be owned by the government. There will be two gains from this. The government and the companies then will not come into direct contact at all. Second, the government will still continue to control these companies even though they will no longer be formally government owned. As a result they will be excluded from the writ jurisdiction of the high courts, the ambit of parliamentary questions, the tentacles of Parliament