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Exclusive | Privatisation of general insurer, 2 banks unlikely to be completed this fiscal

The Centre is confident of meeting the ambitious divestment target of Rs 1.75 lakh crore through share sales in Air India and other companies, including the Life Insurance Corporation IPO, which is expected to be India’s largest.

July 19, 2021 / 07:50 PM IST
Finance Ministry (Image: PTI)

Finance Ministry (Image: PTI)

The Narendra Modi government remains committed to privatising two state-owned banks and one general insurer. However, these deals are unlikely to take place in this financial year, Moneycontrol has learnt from informed sources.

Finance Minister Nirmala Sitharaman, while presenting the 2021-22 Union Budget, had said that the privatisation of the three entities would be carried out this year.

Other than IDBI Bank, we propose to take up the privatisation of two public sector banks and one general insurance company in the year 2021-22,” Sitharaman had said.

However, the government now plans to privatise these companies in 2022-23, a top official said.

“This process is about the privatisation of state-owned financial companies, a new territory in terms of policy and a reversal of bank nationalisation. Also, the finance minister has promised there will be no job losses as a result of privatisation. Framing the contours of the deal and finding a suitable buyer will take time,” the official said.

Close

Sources confirmed that Central Bank of India and Indian Overseas Bank had been shortlisted for privatisation. The insurance company, as yet unidentified, could be one among National Insurance, United India Insurance and Oriental Insurance.

Additionally, the Centre is confident that the ambitious divestment target of Rs 1.75 lakh crore this financial year will be met through share sales in Air India, Bharat Petroleum, Shipping Corporation of India, Container Corporation of India, Pawan Hans, BEML, Neelachal Ispat Nigam Ltd., and IDBI Bank, as well as the listing of Life Insurance Corporation of India, which is expected to be the country’s largest initial public offering.

Long process ahead

The official said the process of privatising the two banks and the insurance company will be a long one, especially given that the government must find suitable buyers to ensure that no downsizing takes place in the two lenders.

As shown in the attached chart, after the names are finalised, the proposal will be finetuned by a group of secretaries led by the Cabinet Secretary. It will then go to an empowered group of ministers before submission to the Union Cabinet headed by Prime Minister Narendra Modi.

Arup chart

The Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980 and the Banking Regulation Act will have to be amended. While work to bring about the legislative changes has started, the amendments have not been scheduled to be tabled in the ongoing monsoon session of parliament.

After the Cabinet’s approval, the finance ministry’s Department of Investment and Public Asset Management will begin appointing transaction and legal advisors. The selected advisors will then help the government take forward the process of finding suitable buyers.

“This process will be carried out very carefully. The finance minister has promised no job losses and that promise will be kept,” a second official said.

Even as bank employee unions threaten to go on strike over the privatisation plans, Sitharaman had said in March that no banks would be closed down and all steps will be taken to safeguard the interests of the staff in terms of salaries and pensions.

Govt to move ahead with pending plans

The plans to privatise Air India, Bharat Petroleum, Shipping Corporation and Container Corporation have been pending since 2019. The COVID-19 pandemic and the resultant economic slowdown have put a spanner in the works. However, this also means that a lot of background work has already been done regarding these privatisation candidates.

“Last year and this year, we have already done a lot of work towards fructifying these plans. In many cases, the transaction and legal advisors have been appointed or are in the process of being appointed. We are confident that the target of Rs 1.75 lakh crore will be met,” said the second official.

Last week, the Centre issued requests for proposals for the appointment of the book-running lead managers, legal advisors, share transfer agents and advertising agents for the planned LIC share sale. The size of the IPO is expected to be larger than ever before in the Indian markets.

“It is the endeavour of the government to attract investment from institutional investors, both domestic and global, in addition to retail investors,” DIPAM had said.

The Cabinet had also approved allowing the government and LIC to shed their 100 percent stake in IDBI Bank. The Reserve Bank of India does not consider IDBI Bank a state-owned lender because its majority shareholder is LIC and not the Central government.
Arup Roychoudhury

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