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AS EVENTS ARE turning out, the Vajpayee Government seems to have no heart for pulling itself out of managing banks and for other legislative details that could free the financial sector. Most, if not all, of the key amendments to various banking laws, including that to drop government holding to 33 per cent in nationalised banks, do not seem to get the assent of officials, trade unions or political party of any shade. The Bills, after being placed in Parliament, have been referred to standing committees and the matter stands there. As of now the move to grant independence to bank managements has the backing of the RBI and the bankers — only, this does not amount to much. In the last Budget, the Finance Minister, Mr Yashwant Sinha, pushed the idea of reducing state participation in banks to a minority, based on the Narasimham Committee suggestions, but now there are no takers for the two reports scripted by the Committee.

At 33 per cent, the Government will have sufficient say in the board to prevent any untoward changes proposed by any private party thatacquires a sizable stake. Unlike, pre-nationalisation days, the RBI is sharper and will be able to preserve the integrity of a new order. The RBI could be just a step behind when taking action against any bank board, as in the case of some new private banks in recent times, but ends up doing the job tolerably well. Bankers will be relieved having to report to their boards and the RBI as the amendments will place them out of the purview of Parliament and a host of other bodies such as the Central Vigilance Commission. The diffused shareholding has been good for ICICI Bank and HDFC Bank.

Alterationsin the RBI Act could preserve its regulatory status even while depriving it of ownership and the central bank wants just that. The RBI holds majority stake in SBI and 100 per cent equity in Nabard, and is keen on selling its stake in the former to the government. That is hard to understand as the central bank has been rooting over the years for financial freedom. Why should not the RBI stake in SBI be sold in the stock market? Anyway these are matters for speculation, with the government putting the lid on financial sector reforms, for its own understandable reasons. Recently the RBI Deputy Governor, Dr Y. V. Reddy, argued for a holding company and many think the idea is to offset government's lack of interest in changing the banking system. As long as the holding company will have the RBI and government nominees on its board, banks will prefer to stick to old habits to be on the safe side.

Seemingly, the Government is prepared to place, again and again, recap funds for weak banks such as Indian Bank rather than offer it to the best taker. Privately, some believe Indian Bank will be picked up fast if put on sale as its huge losses are more than made up by its brand name. There is no denying the changes to free the financial sector will need a lot of staying power from Mr Sinha rather than any specialised banking know-how. But by sitting tight on them, the Government is only losing a great opportunity to revitalise the banking industry

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