Govt takes first step towards bank privatisation

The process of bank privatisation would be different from the sale of any other PSU, and more restrictions and measures will have to be put in place.

The government is set to initiate consultations with the Reserve Bank of India (RBI) to devise a new security clearance framework for screening potential bidders of public sector banks (PSBs) as it kick-starts the privatisation process, beginning with the strategic divestment of IDBI Bank.

As the government is moving ahead with strategic divestment of IDBI Bank and is looking to privatise two PSBs, the Department of Investment and Public Asset Management (DIPAM) is looking to put in place an appropriate framework as the potential buyers will have to meet the RBI’s fit and proper criteria, said an official.

The process of bank privatisation would be different from the sale of any other public sector undertaking (PSU), and more restrictions and measures will have to be put in place, the official said.

As potential buyers of IDBI Bank and two other PSBs will need to meet the RBI’s fit and proper criteria, DIPAM is planning to bring the central bank on board to vet candidates in the first step itself, the official said.

“A mechanism is being considered where the RBI will screen bidders as early as an expression of interest is placed.

"This would ensure the privatisation process would move ahead only when suitable candidates show interest in acquiring the lender,” the official quoted above said.

This is being considered so that the process does not fall through at a later stage if bidders fail to meet the RBI’s criteria, he added.

The government is looking to sell its 45.48 per cent shareholding in IDBI Bank.

Life Insurance Corporation of India (LIC), which owns 49.24 per cent, will also offload its stake to transfer the management control to the new buyer.

The quantum of the stake dilution by both the government and LIC will be determined by assessing the market appetite, and in consultation with the transaction advisor and RBI.

The government has appointed KPMG India as the transaction adviser for the IDBI Bank sale.

To determine whether a candidate is ‘fit and proper’ to be a shareholder of a bank, the RBI considers several factors, including the applicant's integrity, reputation and track record in financial matters and compliance with tax laws,  ongoing proceedings of serious disciplinary or criminal nature, financial misconduct, among others.

The changes will help in putting a framework in place for the privatisation of the other two PSBs that the government had announced in the Union Budget.

Central Bank of India and Indian Overseas Bank are reportedly being considered for privatisation.