A cashier (L) counts currency notes as customers wait inside a bank in Hyderabad March 22, 2010.
A cashier (L) counts currency notes as customers wait inside a bank in Hyderabad March 22, 2010. [Representational Image]Reuters

The Modi government is planning to gradually privatise some public sector banks (PSBs) by bringing down the Centre's stake in these banks to 33%, says a report, citing government sources.

As a first step, the government will form a Bank Investment Company, which will replace the proposed Bank Boards Bureau (BBBs).

"Privatisation is definitely on the agenda, else we would not have talked about the Bank Investment Company," an official, requesting anonymity, told Business Standard.

Recently, the government proposed to set up BBBs, which will be responsible for appointing directors in state-run banks and assist them in fund-raising plans. The Bureau will become operational from 1 April, 2016.

The formation of the Bank Investment Company necessitates annulling the Bank Nationalisation Acts of 1970 and 1980, the SBI Act and the SBI (Subsidiary Banks) Act.

"It is a staged way of going about privatisation. That is how you have to build support," said the official. "It is not going to be easy to have it passed by the Rajya Sabha, where it will be resisted by the Left and the Congress."

The investment company, however, will be controlled by the Central government. 

"We will still control the Bank Investment Company, but it need not control 51 per cent in public sector banks. Rather it could control 33 per cent," the official said.

In addition, the public sector banks have to be incorporated under the Companies Act.

An idea of forming a holding company for public sector banks was proposed by former finance minister Pranab Mukherjee in 2012 "to address their capital needs. "

"There is ample headroom for the government to dilute equity in PSBs and still retain ownership. However, the important thing is to improve capacity of management to take decisions, and provide continuity of leadership," Shinjini Kumar, leader, banking and capital markets, PricewaterhouseCoopers, told Business Standard.