Do not dilute govt stake in IDBI Bank to below 51%, officers’ body petitions Jaitley

The All-India Bank Officers’ Association has written to Finance Minister Arun Jaitley urging him not to act on his reported statement that the government could consider the Axis Bank model for holding major stake in IDBI Bank.

It has asked the minister to uphold assurances given by his predecessors on the floor of Parliament that government stake in public sector banks, including IDBI Bank, will not fall below 51 per cent. As of June-end 2015, the government held 76.50 per cent stake in IDBI Bank.

The government holds major shareholding (29.19 per cent as at June-end 2015) in Axis Bank via its instrumentalities, including the Administrator of the Specified Undertaking of the Unit Trust of India; Life Insurance Corporation of India; General Insurance Corporation of India; and New India Assurance Company.

It may be noted that according to the recommendations of the PJ Nayak Committee (set up to review the governance of Board of Directors of banks in India), the government will set up a Bank Investment Company to which its stakeholding in public sector banks will be transferred.

The committee observed that it is desirable for the government to level the playing field for public sector banks in relation to their private sector competitors. Reducing the proposed Bank Investment Company’s investment in a bank to less than 50 per cent will free the bank from external vigilance emanating from the Central Vigilance Commission, Right to Information Act, and government constraints on employee compensation, the committee said. 

S Nagarajan, General Secretary, AIBOA, said the RBI, via a letter in April 2005, had informed the then IDBI chairman that based on the assurance given by the Finance Minister in December 2003 that government holding in IDBI Ltd would always be above 51 per cent, the bank was categorised under a new sub-group — “other public sector bank.”

Further, the Department of Financial Services, via a letter addressed to all Secretaries of Ministries/Departments of the Union Government, said the Centre shall at all times maintain not less than 51 per cent of the issued capital of the company, he added.

Nagarajan said Jaitley should give an assurance to Parliament and the people of the country that the government will not dilute its stake below 51 per cent in the bank.

“In all, in the present structure of IDBI, there are three entities — IDBI (a development financial institution), IDBI Bank (commercial bank), and United Western Bank (which was amalgamated with IDBI Bank in 2006).

“The government, as owner, has experimented with IDBI at different points in time. The result is burgeoning bad loans in the books of the bank now,” he said.

Year-on-year, IDBI Bank’s bad loans rose to ₹14,112 crore as at June-end 2015, from ₹10,763 crore as at June-end 2014. Gross non-performing assets as a percentage of gross advances were up at 6.64 per cent (5.64 per cent as at June-end 2014).