Repeal Bank Nationalisation Act: 10th Plan

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New Delhi, July 4: : In a radical move towards accelerating privatisation of public sector banks, the Tenth Plan has advocated repeal of the Bank Nationalisation Act to enable banks to become ordinary companies operating under the Companies Act.

According to sources, the Tenth Plan (a major portion of which has already been finalised) has also suggested that branches of weak banks should be auctioned and the role of the government in the governance structure of public banks should be reduced.

The Plan observed that private sector banks were better managed than government banks the world over and it was very important to proceed with the privatisation of PSU banks in the Tenth Plan period.

As it would take some time to privatise all public sector banks, the Plan suggested that their functioning could be improved by changing the governance structure.

The smooth functioning of public sector banks is hindered by interference from bureaucrats and politicians, interaction with the central vigilance commissioner and comptroller and auditor general and implementation of public sector human resource policies, the Plan pointed out. It suggested that the mechanism of government’s ownership of stake in banks should be modified so as to distance banks from government, leading to reduction in interference, avoidance of scrutiny by CVC and CAG and departure from HR policies.

In the case of weak banks, the Plan observed that the extent to which weak banks perform financial intermediation in the economy should be curtailed. It suggested that weak banks should auction some of their branches together with associated employees, assets and liabilities to raise resources. This would reduce the extent to which financial intermediation in the country is done by distressed entities.

The process of nationalisation of private banks was initiated by former Prime Minister Indira Gandhi in 1969 when she privatised 14 banks under the Bank Nationalisation Act. These banks included the Central Bank owned by the Tatas, the United Commercial Bank owned by Birlas and the Pais-owned Syndicate Bank.

The State Bank of India (SBI) was nationalised in July 1952 under the SBI Act of 1955.