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Government gave green signal to bring in a legislation to reduce government equity to 33 per cent in public sector banks without losing any government control. The Union Cabinet has approved an amendment to the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980, which will reduce the prescribed minimum shareholding of the Central government from 51 to 33 percent in nationalised banks.
The 1970 and 1980 Acts brought about after the nationalisation of 14 and 6 banks respectively were first amended in 1994 to allow government to reduce its equity in them to up to 49 per cent. The 20 nationalised banks became 19 subsequently after New Bank of India merged with Punjab National Bank. So far only six of the 19 nationalised banks have gone for public issues. Following measures will become law after the approval of Parliament.
1. State-owned banks to dilute Government equity from the norm of a minimum 51 per cent to 33 per cent.
2. Voting rights will be restricted to one per cent, irrespective of the equity holding of investors.
3. Government will appoint the chief executive and board-level directors in the banks.
4. Government will introduce a clause, which would ensure wide dispersal of shareholding.
5. Banks will now be able to increase the number of wholetime directors from the existing two to four.
6. Present mandatory requirement of nominating a director each from the RBI and financial institutions and chartered accountants to the board of banks is removed.
7. A Union Government official can now be nominated to the board of two banks, instead of one as stipulated earlier.
8. Shareholders of banks can now discuss, adopt and approve the annual accounts and the balance sheet at annual general meetings (AGMs).
9. Paid-up capital of nationalised banks can now fall below 25 per cent of the authorised capital.
10. Amendment will also enable the setting up of bank-specific Financial Restructuring Authority (FRA). Authority will be empowered to take over the management of the weak banks. Members of FRA will comprise of experts from various fields & will be appointed by the government, on the advice of Reserve Bank of India.
Above measures seen in totality are clearly aimed at enabling banks to access the capital markets and raise funds for their operations. The Government has no plans to reduce its control over these banks.
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