Shares in IDBI Bank jumped 4.6 percent Friday after Finance Minister Arun Jaitley told CNBC-TV18 that the government is working out ways to give more operational freedom to state-run banks and hinted at IDBI Bank being one of the first test cases.
Shares in IDBI Bank jumped 4.6 percent Friday, and followed it up with another 7.5 percent rally today, after Finance Minister Arun Jaitley told CNBC-TV18 that the government is working out ways to give more operational freedom to state-run banks and hinted at IDBI Bank being one of the first test cases.
In the interview, the FM cited the example of Axis Bank, which is promoted by government-run companies and which virtually acts as a private sector bank (in that, it is not subject to hiring restrictions placed on banks; as well, it does not come under the oversight of the CAG or CVC like state-run banks do).
For all practical purposes, Axis is considered a private-sector bank.
The contrast is stark between state-run banks in which a government holds a direct majority stake versus a bank in which government entities own anchor shareholding stake, and the FM alluded to this in the interview.
"Take Axis Bank, for instance, and that is the model where through various government instrumentalities, there is a major shareholding that the government has but the government maintains an arm's length distance and it is a bank which has done remarkably well," he told CNBC-TV18's Shereen Bhan in an interview. "Therefore, can we, with regard to any other institution that we have, like IDBI, follow that model?"
State-run banks in India are governed by the Banking Companies Act, 1970, under which many of them were nationalized.
IDBI came into existence under the ambit of the IDBI Act, 1964 but this was later repealed by the IDBI Repeal Act, 2003, which facilitated the erstwhile financial institution's conversion into a bank.
Interestingly, the IDBI Repeat Act, when it was introduced, made no mention of the need for the government to maintain a minimum 51 percent, something that the government only clarified upon later.
Separately, the Indian government has introduced or proposed several measures to reform the functioning of state-run banks and give them greater freedom.
Amongst these is the announcement to create a Bank Board Bureau, which will comprise of professionals that will oversee appointments and broad strategy planning for state-run banks.
The BBB, which is slated to come into force on April 1, 2016, is then proposed to be replaced with a bank holding company-like structure, in which government's stakes in state-run lenders will be transferred and which will then oversee their operations.
Recently, as part of its Indradhanush bank reform programme, the government also appointed two executives from the private sector to head Canara Bank and Bank of Baroda.
(posted by Nazim Khan)
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First Published on Sep 21, 2015 09:13 am