New amendments needed for stake sale in PSBs in NTPC model

New Delhi, Nov 29 | Updated: Nov 30 2004, 05:35am hrs
Replicating the NTPC model of using public offers to dilute government stake in public sector banks (PSBs) may not be a feasible option immediately for the finance ministry. Legal hurdles will have to be cleared prior to attempting the IPO route for sale of government stake in banks.

Sources in the banking sector said that necessary amendments have to be made in the Bank Nationalisation Act, favouring lowering government stake in PSBs from the current level of 51% to 33% as recomended by the Narsimhan Committee.

Once the amendment is brought in, it will give the requisite headroom for banks to raise funds from the market, as and when required, to be able to meet the Basel II norms, a source said.

That apart, the Bank Nationalisation Act also has to be amended to allow the government transfer its shares. The ministry has shown its concern over the fact that the capacity for banks to raise money from the market at a later stage would diminish, considering that the government holding can come down to 51% and not below that.

In 2000, a similar proposal had been made to allow the government transfer its shares. The proposal, however, did not see the light of the day.

These are some of the hitches that the government is facing in going ahead with replicating the NTPC model in PSBs. The government has to first sort out these issues to be able to go ahead with it, the source added.

A number of banks, including Dena Bank and Syndicate Bank, have got an approval from the finance ministry to hit the market. The ministry is currently studying Bank of Barodas proposal to raise capital.

The banks will have to adhere to the Basel II norms by 2006, for which they have to raise their capital adequacy ratio from the stipulated level of 9.5% at present.