Left parties see red over SBI public offer

Written by Economy Bureau | New Delhi , Aug 30 | Updated: Aug 31 2007, 05:04am hrs
State Bank of Indias follow-on public offer seems to be in jeopardy. The Left parties have objected to bringing down governments equity in SBI to 51% from the current 59.73%.

In a dissent note, submitted to the standing committee on finance examining the SBI (Amendment) Bill 2006, Rupchand Pal and Laxman Seth of CPI(M) have raised serious objections to the proposal which seeks to enable SBI to raise resources from the market.

Since the SBI public offer is contingent on the reduction in government equity, that has to be approved by Parliament, this could put a spoke in the process. The Left parties are likely to vote against the Bill that finance minister P Chidambaram is planning to move through the Houses.

The members have stated that the proposed amendments would limit SBIs ability to carry out its social obligations and reduce its competitiveness vis--vis private sector banks.

Putting the SBI at par with other banks including private sector banks will be a retrograde step, states the dissent note by Pal. The member has said reducing government equity from 59.73% to 51% are indicative of the direction towards privatisation, which the government has preferred as its chosen path for financial sector reforms.

The standing committee, headed by BJPs Ananth Kumar has, however, broadly endorsed the SBI Amendment Bill. The committees report says that the provisions are expected to provide substantial leverage to the SBI in meeting the future capital needs of the bank in a cost-effective manner.

The Bill allows the state-run bank to increase its capital through the issue of preference shares, equity and preferential allotments including private placement. It proposes to allow the bank to dilute the governments shareholding to 51% and increase its authorised capital to Rs 5,000 crore.

The SBI (Amendment) Bill, was introduced in the Parliament on December 18, 2006 and was immediately referred to the standing committee for further examination. The committee, in its report submitted on Thursday in Parliament, has asked the government to ensure that the state-owned character of SBI is retained even after the government stake in the bank is reduced to 51% as per the proposed Bill. The government has recently bought over the RBI stake in SBI at a cost of Rs 35,000 crore. It had issued an ordinance for the purpose. The panel has criticised the government for not incorporating transfer of RBIs shares in SBI to the government in this Bill.

The parliamentary panel said certain quarters had expressed apprehensions that the Bills provision to reduce the government equity would have the possibility of affecting the state-owned character of the bank and is tantamount to creeping privatisation of the bank.

The report states it is essential to emphasise that the amendment proposals would not dilute the state-owned character of SBI. The provision was contained in the SBI (Amendment) Bill, 2007.