Finance minister Pranab Mukherjee reintroduced the State Bank of India (Amendment) Bill in Parliament on Monday?the Bill which will reduce the government?s shareholding in SBI from 55% to 51% was first introduced in 2006 but lapsed with the dissolution of the 14th Lok Sabha. The long delay between the time the Bill was first introduced and now reintroduced tells the story about the kind of time lags that plague key decisions on public sector undertakings. In a private corporate entity, reducing promoter shareholding from 55% to 51% would be a matter decided in days, weeks or may be months, but not years. But the UPA government seems in no mood to free public sector undertakings, including banks, from such control. That is unfortunate.
Still, the SBI Bill, if passed, will help India?s largest bank in a number of ways. First, the offloading of some government shares will help shore up SBI?s equity base from sources outside the government?SBI plans to raise Rs 40,000 crore in the next three years. That is welcome. The amendment bill will also give SBI more autonomy from the government in its functioning. The government will no longer be able to appoint more than four managing directors, and the post of vice-chairman will be abolished. Significantly, any shareholder with at least Rs 5,000 worth of shares will be allowed to contest an election to directorship of the bank?s board. Of course, this is hardly in the category of big bang reform that Indian banking needs. But if the government is going to continue to shy away from privatisation, then as a second best it is important to give PSBs autonomy and subject them to the discipline of the stock market?-something that listing a larger proportion of their shares on stock markets will enable. The autonomy should also extend to PSB boards, rather than finance ministry officials, taking decisions on whether to merge or acquire other PSBs. That should help improve efficiency in the largest segment of the Indian banking industry?private and foreign banks are still minor players. Of course, over the medium term one hopes that RBI will follow the finance minister?s Budget promise and give out many more licences to banks, and take other steps to increase competition in the banking system. That is probably the best way to spur SBI and other large PSBs to improve their efficiency and performance.
