FM may lower floor for govt stake in banks

Proposal also for transfer of shares.

Finance Minister P Chidambaram will shortly decide on amendments to the Bank Nationalisation Act and the Banking Regulation Act, seeking to reduce the floor on the government holding in 19 nationalised banks from 51 per cent to 33 per cent and also to provide for transfer of shares.

A proposal to this effect has been put before Chidambaram by the finance ministry. A decision on the matter, however, appears tough because of the Left parties' opposition to the amendments proposed by the previous government to the Bank Nationalisation Acts of 1970 and 1980.

Even the Congress had protested against the move. The proposal suggests that norms should be put in place stipulating majority control of bank boards to ensure that nationalised banks fulfil their social responsibility.

The cap on voting rights, at 1 per cent, is also proposed to be maintained to ensure that private entities or individuals do not take control of a bank. As per the law, the voting rights of all shareholders, other than the Centre, is capped at 1 per cent.

The finance minister will also consider a proposal to change the management structure of nationalised banks to facilitate consolidation. As of now, a nationalised bank is headed by an executive chairman and managing director who is assisted in the task by an executive director.

Management structures like splitting the post of chairman and managing director and having joint managing directors and more than one executive director are being considered.

According to ministry sources, the system of appointment of directors is also being reviewed.

The Reserve Bank of India (RBI) was not in favour of nominating directors since it was perceived as being a part of the management in addition to its role as a regulator, officials said.

The proposal regarding the transfer of shares is aimed at helping in the consolidation of nationalised banks.

There is, however, no move to amend the State Bank of India Act to reduce the RBI holding below the stipulated 55 per cent.

Tough call

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• A decision on the matter appears tough because of the Left's opposition to the amendments proposed by the previous government to the Bank Nationalisation Acts of 1970 and 1980