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Government all set to unshackle banking sector

The Govt is all set to bring in major policy guidelines to set the ball rolling on the privatisation of banks.

india Updated: Feb 24, 2003 13:59 IST

Bolstered by the positive impact of the Securitisation Act, which has significantly improved the performance of the Indian banks, the government is all set to bring in major policy guidelines to unshackle the banking sector and set the ball rolling on the privatisation of banks.

Among the majors decisions which are likely to be announced in the Union budget include enhancing the voting rights of the individual shareholders from the current level of 10 per cent, reducing government holding in public sector banks to below 51 per cent, increasing the FII holding limit of 20 per cent and separating FIIs investment from investment made through GDR or ADR route while calculating foreign holding.

Some of the leading foreign banks like HSBC have expressed their reluctance to invest in Indian banking sector unless the voting rights are increased in proportion to shareholding. Currently, foreign banks are allowed to acquire up to 49 per cent stake in private banks, but voting rights remain restricted to 10 per cent.

According to banking sources, the move is aimed at attracting more investment in the banking sector. The current restriction of 10 per cent voting rights is a major roadblock for foreign banks to invest in India.

In addition, the government is also planning to increase the current limit of 20 per cent for foreign institutional investors. It is learnt that the FII investment will be separated from investment made through ADR and GDR routes in banks while calculating foreign holding. The separation will have major impact on the stock price of SBI as FII investment in this bank has already reached 19.63 per cent. This also includes GDR holding of 7.89 per cent.

Since the banking stocks are in the limelight following the Securitisation Act, there is lot of activity in these counters. In this scenario, there is all probability that the government may enhance the limit, said a top banker.

Most importantly, there is an indication that the government might bring down its holding to below 51 per cent with some riders. According to experts, while the government is contemplating to bring down its stake, it would simultaneously restrict the individual holding to certain level, which could be below 26 per cent.

First Published: Feb 22, 2003 23:38 IST