According to highly placed sources, with a view to fulfill its agenda of privatization of the two public sector banks, the government is likely to amend the Banking Regulation Act 1949 during the upcoming winter session of Parliament.
In addition, privatization of banks would require amendments to the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, the sources added.
These too are likely to be introduced during the winter session, he said.
These laws nationalized the banks during the tenure of Prime Minister of Indira Gandhi and if the government wants to privatize public sector banks, it will have to amend the provisions in the above laws.
The amendments are likely to bring down the government’s stake in the two public sector banks from the current 51 per cent.
However, the government is yet to identify the two banks that are to be privatized.
Finance Minister Nirmala Sitharaman had earlier said that the government plans to privatize at least two public sector banks.
Sources said the amendments will allow a legal framework for privatization and bring in corporate governance by reducing the number of government nominees in banks, which will be privatized.
In addition, there will be fresh capital as well as foreign investment in these public sector banks, sources said.
This decision will send a positive message to the investors and ensure smooth and timely transition for these banks.
The privatization of public sector banks will help the government meet its disinvestment targets and reduce the expenditure on capital infusion in banks.
Ms Sitharaman had announced a major privatization agenda in the Union Budget for 2021-22, which included the privatization of two public sector banks and a general insurance company.
As part of its disinvestment plans, the government has decided to go for a mega initial public offering (IPO) of Life Insurance Corporation of India (LIC) and residual stake sale in IDBI Bank during the current financial year.
The government has earmarked Rs 1.75 lakh crore from stake sale in public sector companies and financial institutions during 2021-22.