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Government route will determine if it is reform or monetization

CNBC-TV18 learns that the government has proposed to privatize the Indian Overseas Bank and the Central Bank. There are three legislative ways to privatize banks, and which route the government takes will make a difference for all public sector banks.

The point to note is that it is not just about privatizing two banks, it is a whole philosophy of reform that we will know when we know the way of privatization. So just to get to the laws, the government can amend the Nationalization of Banks Act, or it can completely overturn the Nationalization of Banks Act and subject banks to the Companies Act, or third, it can create a holding company, which owns all the banks. From now on, the path it takes will determine the quality and intensity of the reform that the government intends to put in place.

In the law on the nationalization of banks, the requirement is that the government must own more than 51 percent. Now you can say I want a single exception for IOB, the Central Bank and add it as an amendment to this law.

Alternatively, you can say that you are changing the Bank Nationalization Law itself and the government stake can drop below 51%. However, there the quality will be very different, whether you take the one-off course or whether you take a general service.

Likewise, subjecting banks to company law is something that PJ Nayak Committe recommended; Dr YV Reddy had made a speech to this effect in the year 2000 saying that it would be a real reform. Now, if you put all the banks under the corporation law, you are effectively canceling the bank nationalization law, but it is qualitatively superior because the government has powers over the banks, under the regulation law. of banks that will not apply.

You’ll behave like a business, all these audit rules, the audit committee, the NRC, the compensation committee, the 51% independent directors, it will all come. So the extraordinary government influence will not be there on the banks, they will operate as a business under the corporation law, it would be a stronger path, and it would be reform, it would not just be privatization of two banks.

Finally, if you create a holding company, it’s like a Temasek. I mean, do we know DBS is not a private bank, it is a government owned bank in Singapore. But because it’s owned by Temasek and they own DBS, it behaves pretty much like any other private foreign bank.

In this process we already have many examples – SBI owns SBI mutual funds, insurances, all these companies that are grandchildren of the government, because it had much more freedom, they are not accountable to the government. CVC, in front of the CAG. There are more nominations of people. You don’t have to go through the bank recruiting process exams. It is a real quality of management, freedom and autonomy which is improving which could be a third way.

We do not know what the government will do, but we hope that it is not just about privatization but about real reform.


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