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The New Banking Law (Amendment) Bill, 2021 is likely to reduce govt’s share in public sector banks

By Mansi Tekam

26th December 2021: The government's proposed Banking Laws (Amendment) Bill, 2021, intended to privatize two public sector banks (PSBs), will be held off for the next fiscal year. If accepted, the measures would allow the government to progressively reduce its stake in state-run banks from 51 percent to 26 percent without losing control over management selections. The govt. has told the public that it shouldn’t be deliberated to privatize banks. It would also make it easier to privatize some specified lenders and allow foreign investors to buy larger holdings in others without requiring parliament’s consent. The move would weaken some of the measures established by India in 1969, when the state stepped in to nationalize its lenders, resulting in an expansion of banks that still hold two-thirds of the sector’s assets and the vast majority of its bad loans. Some of the key proposals were as follows:

  1. An enabling provision to expedite obtaining legislative approval for privatizations as agreed upon in discussion with the RBI.

  2. The government share was decreased from 51 percent to a minimum of 26 percent; regulation would not be transferred to the Companies Act, controlling private-sector lenders.

  3. Foreign stakeholdings may be allowed to exceed the 20% limit.

  4. The voting rights of a single shareholder will no longer be limited to 10%.

Thousands of employees from state-owned banks are protesting the government’s proposed privatisation of banks which is a fraught affair in India for unions. With the success of the privatization of Air India Ltd., the govt is heading towards the listing state insurer LIC with the hope that privatization of banks would increase investors’ appetite after the bad bank loans are paid off.


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