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Govt dumps Vaidya's proposal for SBI

P. Devarajan

THE Finance Minister, Mr Yashwant Sinha, has said the SBI Act would not be amended to let the stake of RBI, the majority holder at 56 per cent, to fall and help the country's premier bank to raise funds through a domestic or foreign issue.

With that the idea of the earlier SBI Chairman, Mr G.G. Vaidya, to up the stake of the public has been dumped. However, it does not follow the equity of SBI may not be enhanced whenever it is necessary. Indications are the RBI could well transfer some o f its huge profits, which it diverts to the Union Government, to SBI and also raise its stake. The RBI could use the monies under Asset Development Reserve for beefing SBI's equity.

Initially, the central bank was keen on getting out of SBI and selling its stake to the Centre. Thankfully, it did not happen. In October 2000, Dr Bimal Jalan had said, ``SBI does not need capital right now. If SBI needs capital and they cannot go to the market, the shareholders will have to provide it (RBI is the majority holder).''

Apparently, SBI will have nothing to worry when it comes to expanding its asset base. Yet, it may be better if the Government can agree to the Vaidya suggestion for which even consultants were appointed in SBI to update accounting norms to US GAP norms.

Perhaps, India is one of the prime examples of a central bank having a majority say in the running of the biggest commercial bank. To be fair, the central bank is aware of the contradictions and they can go only if the central bank's stake comes down to 33 per cent as suggested by the Narasimham Committee (second edition).

The Government is dropping its stake (or rather threatening to drop its stake) in nationalised banks from a majority stake to 33 per cent as it cannot provide recap funds. If the Bill to amend the various Acts go to yet another select committee (and the Prime Minister will agree if the trade unions go ahead with an indefinite strike), even this modest step forward will not take place.

The way some of the nationalised banks are performing, it is doubtful whether they will get public funds as the management is not going to change. One can either appease trade unions or the funding public; but one cannot do both.

The Government is reluctant to give up on SBI as it wants a merchant arm to raise foreign funds whenever it wants. Again, it can coax SBI to put money into government floats. It is not as if the top brass of SBI do not understand but do they have a say? Bankers privately admit government disinvestment in other banks will not make any difference. But some among them disagree.

They believe the Government over a period of time will be forced to get out of running banks and the change could come in about four to five years from now. ``It will not be far away when some new private banks bid for nationalised banks,'' said one priv ate banker. Surely, ICICI would like Bank of Baroda and HDFC would like to match it with a Corporation Bank tie-up? May be, some other deals could also be struck.