GOVT REVIVES PLANS TO BUY RBI'S STAKE IN NABARD, NHB

Fin Min may provide Rs 1,900 cr in supplementary demand for grants for this.

The government has revived plans to buy the Reserve Bank of India’s (RBI’s) stake in two financial institutions. RBI may transfer its holding in National Bank for Agriculture and Rural Development (Nabard) and National Housing Bank (NHB) to the government this year, paving the way for listing of these institutions.

The finance ministry plans to make a provision of Rs 1,900 crore for this in the first supplementary demand for grants, to be tabled in the monsoon session, which will start by the end of this month. People familiar with the development in RBI told Business Standard a provision of Rs 1,450 crore and Rs 450 crore would be made for acquiring stakes in Nabard and NHB, respectively.

While NHB is fully-owned by RBI, the government has 27.5 per cent stake in Nabard. The paid-up share capital of Nabard is Rs 2,000 crore, of which RBI’s share amounts to Rs 1,450 crore. The acquisition of RBI’s 72.5 per cent stake in Nabard will take the government holding to 100 per cent.

In February 2007, the Cabinet allowed the government to acquire RBI’s stake in these two institutions by June 2008. This was in line with the recommendations of the Narsimhan Committee on Banking Sector Reforms, which said the regulator owning the institution it governed was inconsistent with the principles of effective supervision. The Cabinet said the move would remove this conflict of interest.

The government made a budget allocation for the purchase in 2008-09 and 2009-10, but could not go ahead. In Budget 2010-11, it dropped the allocation on concerns raised by RBI, which said credit to housing and agriculture sectors was the priority at that moment.

“Earlier, RBI had asked the finance ministry not to acquire the stake this year because of the global financial crisis. But now it plans to issue a notification for stake transfer,” said another official, who did not wish to be identified.

The Narsimhan Committee had also recommended transfer of RBI’s stake in the largest public sector lender, State Bank of India (SBI), to the government. The was immediately accepted and in 2007, the government bought 59.73 per cent stake held by RBI in SBI for Rs 35,531.33 crore.

Source: http://www.business-standard.com/india/news/govt-revives-plans-to-buy-rbi/s-stake-in-nabard-nhb/401194/