Govt plans to exit public-sector banks after privatisation: Report

The govt can influence boards even with a minority stake and that may be an attractive situation for private players

The Central government is considering selling all of its stake in public sector banks after they are privatised, reports Business Standard citing sources. The publication also reports that the government is nudging the Reserve Bank of India (RBI) to ease rules of ownership in private sector banks. RBI, the Prime Minister's Office (PMO) and the finance ministry are in discussion to ascertain the level of stake that should be retained by the government in private sector banks.

The PMO has been asking officers and financial specialists outside the government since July fiscal year to discuss the matter over two days. Ever since those discussions, government officials have said that government must not retain any shareholding in the bank which is to be divested as it would prove difficult to convince private players that the government would not interfere in board decision even if it has a minority stake in the organisation, says the publication, citing a source. This could potentially drive away private players. The government having no stake could be attractive to many private entities.

According to the Indian Companies Act, a shareholder with just 10 per cent of the company’s paid-up share capital, can requisition the board to organise an extraordinary general meeting. There may be other methods in which the govt can assert its presence and this potential stunt the growth of the institution.

The government has planned to sell its stake in four of the 12 public sector banks. These include Bank of Maharashtra, Punjab and Sind Bank, and Indian Overseas Bank. According to the website's source, some of the larger banks with which some smaller ones have merged are not taken into account.

This move means that the government will have gain the confidence of the capital market that its exit will not threaten the security enjoyed by depositors by ensuring that the company adheres to strict corporate governance standards.

The Centre however, will not divest its banks this financial year.