Reducing Government Stake In Banks: The Steps PM Modi Is Reviewing



New Delhi: The government is considering changes that would make it easier to lower its stake in state-run banks, a key step in Prime Minister Narendra Modi's plan to unclog credit flow to the economy. The proposals-- if approved-- would allow the government to gradually lower its holding in state-run lenders to 26% from 51% without diluting its grip on management appointments, the people said, asking not to be identified as the deliberations are private. 

They would also simplify privatization of certain identified lenders and permit foreign investors to purchase bigger stakes in others without seeking parliament approval. With the proposed amendments, PM Modi is seeking to reduce state-run banks' reliance on frequent injections of government capital while still maintaining their quasi-sovereign status that depositors favor. 

The move would dilute some of the policies India enacted in 1969 when the country swept in to nationalise its lenders, creating a swathe of banks that even today control two-thirds of the sector's assets and the bulk of its bad debts. Key Proposals: 

* Insert an enabling provision to speed up the process toward parliament approval for privatizations after details have been agreed with the Reserve Bank of India (RBI). 

* Government stake reduced to minimum 26% from 51%; regulation wouldn't move to the Companies Act that governs private sector lenders. 

* Foreign stakeholdings can be allowed to breach the 20% cap


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