Centre's stake in banks may stay at 26%

Centre's stake in banks may stay at 26%

Currently, the Centre holds a 51% stake in all public banks, which is expected to come down as per a new proposed amendment

Photo shows RBI logo. Credit: AFP Photo

The Central government may continue to have a 26 per cent stake in public sector banks, two of which are currently being considered for privatisation. 

Currently, the Centre holds a 51 per cent stake in all public banks, as per the Banking Companies (Acquisition and Transfer of Undertakings) Act of 1970, but this is expected to reduce to 26 per cent if the Banking Laws (Amendment) Bill 2021 is cleared in the upcoming session of Parliament, according to a report by the Business Standard.

The reduction would enable institutional and public investment, thereby helping the exchequer with better receipts and also lead to privatisation, meeting disinvestment targets besides reducing lenders’ dependence on the government for capital infusion, government sources told the publication.

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However, the government may not bring the share down to 26 per cent at one go. The quantum of stake reduction in these banks would be decided while finalising the contours of the transaction.

According to the proposed amendments, the Centre would be empowered to make a scheme for privatisation of PSBs, in consultation with the top bank. 

The bill is also expected to insert clauses to determine the remuneration and compensation for directors and officers, who, on a full-time basis, are carrying out material risk-taking and control functions. This would include amendments to facilitate a board of directors for newly privatised banks.

The proposed amendments will also help set up a more professional board with the flexibility to bring expertise at the management level, and offer better remuneration, an official told the publication.

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