THE GOVERNMENT FILE on banking sector reforms has been banged shut for the tenure of the Manmohan Singh Government. The Centre will continue to remain the majority shareholder, with 51 per cent equity, even if the public sector banks (PSBs) have little to show for it. ICICI Bank in the private sector has become the second biggest outfit in about 10 years, leaving most PSBs way behind. Ironically, the Government move coincides with its Chinese counterpart, for the first time, deciding to forego majority stake in Guangdong Development Bank, and allowing a public offering that is open also to foreign bidders.

It is a mite distressing that Dr Manmohan Singh, as Finance Minister, had set up the Narasimham Committee that favoured a lowering of government stake in the PSBs to 33 per cent and the Vajpayee Government moved an amending Bill on December 13, 2000 in the Lok Sabha for the same but could not see it through. Even with 33 per cent holding, New Delhi would have continued to be the single largest shareholder with the clout to nullify any dramatic alterations in the working of the PSBs. But that is not to be and government outfits, accounting for 80 per cent of banking business, will be run by bureaucratic edicts. The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and its 1980 version are to be amended to provide for more government directors by trimming public representation though the former have not much to show for the safety of public deposits. Around Rs 30,000 crore of taxpayers' monies need not have been spent on reviving the banking system had the government and RBI nominees done their jobs diligently. That again is not unexpected from New Delhi, which believes in more of itself in banks.

Perhaps, the most critical change is that the Reserve Bank of India need no more send its officers to bank boards with the "mandatory provisions" dropped. Since the Governorship of Dr Bimal Jalan, the RBI has been against occupying a seat on bank boards as it implied regulatory ambivalence — one cannot be a regulator and also run banks. For quite some time now the RBI has not been present on boards of private banks. However, the legal provision enables the central bank to place one or more additional directors on the boards of poorly-run banks. These changes will not apply to the State Bank of India — coming under the SBI Act — in which the RBI holds around 56 per cent. Nationalised banks should not be unhappy with the provision to raise the number of whole-time directors from two to four as, then, an entity can have three executive directors to support the chairman and managing director instead of just one now. In most banks the two rarely enjoy a cosy relationship and adding to their numbers may offer nothing beyond promotional avenues to the general managers. The public subscribing to bank offerings had never any say. Now, they will be able to discuss the working of the banks at the annual general meetings; this would be useful if only the boards cared to listen.

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