Government is very close to taking the first step in its long-term strategy of giving more autonomy to public sector banks. Government has already announced its plan of setting up a holding company for all public sector banks, i.e. Bank Investment Company (BIC). This company will independently control all banks without government’s intervention. It will also help ensure that government’s stake in these banks is strategically reduced to upto 51%.
But since establishment of BIC will take time due to slow moving government machinery and requirement to amend existing legal acts, a temporary arrangement in form of a Bank Board Bureau (BBB) is being considered for time being. This Bureau is expected to take over the selection process for banks and going forward, advice banks on their business strategies, which includes NPA reduction, capital infusion, etc.
Once the BBB gets going, government will setup BIC in due course of time and which will replace BBB. This will be the sole holding company for all public sector banks in India. Government will transfer its stake in all state-run banks to this holding company. BIC will also address the NPA problem of banks and help enhance functional autonomy of the banks. It will borrow funds from market to raise capital, which will then be infused into individual banks as per need. It’s also possible that banks which fail to get their books in order, might be considered for merger with larger, stronger banks.
Experts see the establishment of BBB followed by BIC, as a good strategy change by the government, which will help distance itself from banking operations. The very nature of government, which results in banking operations getting interfered regularly by politicians, makes it tough for banks to conduct their businesses properly. Though its still tough to gauge how successful government will be in ‘not interfering’ with the banks, this move does seem to be made with a good intent.