Intake of Government in the Public Sector Banks of India

There have been various discussions on the intake of government in the public bank sector, and if at all, the government should be involved in the banking sector. The government of India entered the banking sector in 1955 after the nationalization of the Imperial Bank of India. The bank was then named State Bank of India (SBI). The government owns a 55% stake in SBI.

As of 2021, there are 12 public sector banks in India, with India’s Ministry of Finance or state Ministry of Finance holding more than 50% stake in these banks.

What is the Intake of Government in the Public Sector Banks of India?

Public sector banks are commercial banks where the majority of their stake is government-owned. This gives the government the ability to control the bank’s policies and management. The economic reform that began in 1990 contributed to the development and expansion of The financial system in India. India has a total number of 12 public sector banks. The intake of the government in all public sector banks in India is 51% of its equity, according to the banking company (Acquisition and Transfer of Undertakings) Act, 1970.

Below are the public sector banks in India

Government minimum shareholding in India

Public sector companies are excluded from the minimum public sharing norm by the Finance Ministry in India by making changes to the Securities Contracts (Regulation) Rules, 1957. The Government minimum shareholding in India is a 25% stake for PSBs on the verge of privatization. 

The government minimum shareholding is secured under the SECURITIES CONTRACTS (REGULATION) RULES, 1957. On July 30, 2021, the Finance Ministry issued a notification on the intake of the government concerning minimum shareholding. The Ministry said: “In the Securities Contracts (Regulation) Rules, 1957, in Rule 19A, after sub-rule (5), the following sub-rule shall be inserted, namely: (6) Notwithstanding anything contained in sub-rules (1) to (5), the Central Government may, in the public interest, exempt any listed public sector company from the provisions of this Rule.

Acquisition and Transfer of Undertakings

In 2021, the Banking Law ( Amendment) Bill was introduced. The bill aimed to privatize two public sector banks in India. According to the proposed bill, based on the privatization of two PSBs, there needs to be some adjustment to the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and 1980.

Over the years, India’s banking sector has recorded some significant changes. There have been successful mergers and acquisitions, which have helped its economy grow. For Instance, in 2019, the government merged 27 PSBs and reduced them to 12. The Competition Act 2002 (Competition Act) is the primary legislation that regulates Combinations (mergers and acquisitions) in India. Sections 5 and 6 of the Act deal with the regulation of mergers and acquisitions.

On March 4, 2020, The Central Government exercising the powers conferred by the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, after due consultation with the Reserve Bank of India, notified the Amalgamation of Andhra Bank and Corporation Bank into Union Bank of India Scheme, 2020 (“Amalgamation Scheme”)

Nirmala Sitharaman, the Minister for Finance, announced in her 2021-2022 budget speech that the privatization was part of the government’s goal to gather Rs 1.75 lakh crore in the current fiscal year through disinvestment.

Conclusion

The Indian government is making so many adjustments to its policies to improve its nation’s economy. One of these steps includes the privatization of two public sector banks by making necessary amendments to the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. In India, the banking sector plays a huge role in the country’s economy. It accounts for over half of the country’s financial sector assets. In the coming months, the world’s eye is on India as it reduces minimum government shareholding to 26% and privatizes two PSBs.