Centre Can Continue to Retain a Minimum of 26% Stake in PSBs

The Centre might retain a minimum of 26% stake in public sector banks (PSBs) that are in consideration for privatisation. As of now, the government is planning to privatise two banks.

As per the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, currently, the Centre has to retain 51% at all times in PSBs. However, as per the Banking Laws (Amendment) Bill 2021, now there may be a reduction in the minimum shareholding of the government in PSBs to 26% that is set to be implemented in the forthcoming Parliament session.

Even though the government will retain its shareholding to 26%, it might not hit this level in a single go. The dip in the government’s shareholding to 26% in PSBs will assist in public and institutional investment, which will help an exchequer with finer receipts. This reduction will facilitate privatisation and help meet the disinvestment goals, apart from bringing down the lenders’ dependency on the government concerning capital infusion. Also, the amendment aims at replacing the provisions of the Companies Act, 1956, with the provisions of the Companies Act, 2013, concerning the auditors’ conditions of PSBs.

There will be provisions related to the disqualification of directors in the legislation. Also, the legislation will comprise the terms and conditions associated with the service of the chairman, board of directors, and whole-time directors. Also, the new sections will be added and made mandatory for each director to divulge interests in corporates.

There will be specific clauses added in the bill to decide on the compensation and remuneration of whole-time officers and directors executing the newly privatised banks’ material risk-taking and control functions. It will also comprise amendments for introducing changes in the retirement of directors and to form a scheme concerning the board of directors of the newly privatised banks.

The proposed amendments will assist in creating a better professional board that offers more flexibility for bringing in expertise at a management level and render more remuneration.

For any clarifications/feedback on the topic, please contact the writer at bhavana.pn@cleartax.in

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