Banking operations to conform to modern business norms

NEW DELHI, DEC 13. A Bill introduced in the Lok Sabha today seeks to reduce the Government's equity in nationalised banks from 51 to 33 per cent and empowers it to supersede the board of directors of any public sector bank and constitute a financial restructuring authority.

The Bill proposing to amend the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980, seeks to remove the restriction of free transferability of shares held by the Government with a view to facilitating acquisition, merger and financial restructuring on a case-to-case basis.

The Banking Companies (Acquisition and Transfer of Undertakings) and Financial Institutions Law (Amendment) Bill 2000, introduced by the Finance Minister, Mr. Yashwant Sinha, seeks to remove the existing restrictions requiring reduction of capital not below 25 per cent in all nationalised banks with a view to facilitating cleaning up of the balance sheet.

It will also empower the Government to increase the number of wholetime directors from two to four and to nominate any officer of the Government as director on the board of not more than two banks in place of one bank.

It will empower the shareholders of nationalised banks to discuss, adopt and approve the annual accounts and the balance sheets at their annual general meeting.

The Bill will enable the banks to transfer unclaimed dividends more than seven years old to an investor education and protection fund established by the Government under the Companies Act.

On the basis of Reserve Bank recommendations, the Government would have the powers to supersede the board of directors of any nationalised bank and constitute a financial restructuring authority after the amended act comes into force.

Fourteen major scheduled banks, each with deposits of Rs.50 crores and more, were nationalised in July 1969 by the Banking Companies Act 1969. However, the Supreme Court by a majority judgment delivered on February 10, 1970 declared the Act void.

With a view to resuming control over these banks, the President on February 14, 1970 promugated an ordinance. This was replaced with the Banking Companies (Acquisition and Transfer of Undertakings) Act 1970. Six more private banks were nationalised in 1980 by a similar act.

The new measure is being proposed as the resources of the Government were limited and funds required for other priority areas. It was, therefore, not possible for the Government to contribute substantial amounts now required by the nationalised banks for meeting new prudential norms.

As per the recommendations of the Narasimham Committee, the RBI laid down certain prudential norms according to which all banks were required to build up the capital base substantially and ensure that a total capital equal to at least eight per cent.

It was in this context that the Government decided that the nationalised banks be allowed to approach the capital market to raise fresh equity to make their shortfall in capital requirements.

The Government's decision to dilute its equity to 33 per cent in the nationalised banks by injecting fresh capital from the public was aimed at bringing the operation of these banks in tune with the changing economic scenario and modern business practices.

The Bill also seeks to amend the acts of the State Bank of India and its subsidiaries, the Industrial Development Bank of India, the Exim Bank of India, the NABARD, the National Housing Bank and Deposit Insurance and the Credit Guarantee Corporation Act to ensure that non-official directors on the boards do not continue in office beyond their three-year terms.

- PTI

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