Centre may continue to hold at least 26% stake in public sector banks

What is the News?

The Government of India will be introducing the Banking Laws (Amendment) Bill 2021 in the upcoming winter session.

The Bill seeks to amend the Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980 and incidental amendments to Banking Regulation Act,1949.

What are the key provisions of the Banking Laws (Amendment) Bill 2021?

Firstly, Government Shareholding in PSBs: provides for reducing the government’s minimum shareholding in Public Sector Banks (PSBs) to 26%.

Note: At present, the government has to hold 51% in PSBs at all times according to the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970.

Benefits of Reduced Government Shareholding in PSBs: This will enable institutional and public investment in PSBs in turn helping the exchequer with better receipts. This would also help in privatisation and meeting the disinvestment targets, besides reducing lenders’ dependence on the government for capital infusion.

Secondly, Scheme for privatisation of PSBs: The Bill would empower the government to make a scheme for privatisation of PSBs in consultation with the Reserve Bank of India (RBI).

Thirdly, Auditors of PSBs: The bill seeks to replace provisions of the Companies Act, 1956, with the Companies Act, 2013 for conditions for auditors of PSBs, among others.

Fourthly, Disqualification of directors: The Bill will have provisions regarding the disqualification of directors. It will include terms and conditions for service of the chairman, whole-time directors and board of directors.

Fifthly, Remuneration of Directors: The bill will insert clauses to determine the remuneration and compensation for whole-time directors and officers carrying out material risk-taking and control functions of new privatised banks.

Lastly, Protection of Officers: To protect the decision-making of bank executives, a new provision will also be included in the law to protect them for action taken in good faith.

Source: This post is based on the article “Centre may continue to hold at least 26% stake in public sector banks” published in The Hindu on 25th Nov 2021.