Financial Daily from THE HINDU group of publications
Wednesday, Aug 17, 2005
Money & Banking - Public Sector Banks
Banking reform Bill introduced in LS Govt drops move to reduce stake in banks to below 51%
New Delhi , Aug. 16
THE nearly five-year-old move to enact an enabling provision to reduce the Government's holding in nationalised banks to below 51 per cent has finally been given an official burial.
Moving a Bill in the Lok Sabha on Tuesday seeking higher Government representation on bank boards and setting up of a Financial Restructuring Authority (FRA) for troubled banks, the Finance Minister, Mr P. Chidambaram, said that the proposal that would have allowed Government holding to fall to as much as 33 per cent has been dropped.
The move was originally mooted by the National Democratic Alliance (NDA) Government through a Bill introduced on December 13, 2000. However, the Bill lapsed due to dissolution of the 13th Lok Sabha.
"The amendment relating to reduction of prescribed minimum shareholding of the Central Government in nationalised banks from 51 per cent to 33 per cent as mentioned in the earlier Bill has been omitted in the amendments proposed in the present Bill," Mr Chidambaram said in the statement of objects and reasons of the Bill.
Barring the deletion of the clause on Government holding and inclusion of the clause to give the Centre greater representation on the bank boards, the amendments proposed in the Bill are largely on lines of the Bill of December 2000.
The Bill provides for equitable representation of Government directors on the bank boards by reducing the maximum number of directors elected by shareholders other than the Government from six to three.
This would enable the Government to have higher representation on the bank boards commensurate with its shareholding.
It has been stated that out of the 19 nationalised banks, the Government's holding in 15 banks that have accessed the capital market ranges from 51 per cent to 77 per cent. In the other four banks, it holds 100 per cent holding.
It is also being proposed to increase the number of whole-time directors from two to four. Moreover, the provision of mandatory nomination of directors by the Reserve Bank of India and financial institutions is being omitted, while the RBI would have powers to appoint one or more additional directors whenever the regulator senses that a bank has run into trouble.
The Bill provides that the Government can supersede the board of a bank if it consistently flouts laws and regulations, after which it would be placed under the FRA.
An amendment is also being proposed to ensure that non-official directors in institutions such as SBI, DICGC, NHB, and Exim Bank will vacate office after the expiry of three-year tenure whether a successor is appointed or not.
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