Roadmap for financial sector reforms to be unveiled post polls

The plan is also to push for further consolidation of PSBs to create at least one mega bank in the short-term. (Photo: Mint)
The plan is also to push for further consolidation of PSBs to create at least one mega bank in the short-term. (Photo: Mint)

Summary

  • The decision on financial sector reforms is in sync with the Viksit Bharat 2047 plan, which has two roadmaps

New Delhi: The Bharatiya Janata Party—if re-elected—will roll out reforms in the financial sector in a time-bound manner as part of the government's 100-day agenda, said two people with knowledge of the matter.

The roadmap includes privatization of one or more public sector bank and a general insurer, stake sale in five public sector banks, creation of at least one mega-global bank and strengthening the digital infrastructure.

The decision on financial sector reforms is in sync with the Viksit Bharat 2047 plan, which has two roadmaps – one for the first 100 days and another for five years, to strengthen the foundations.

According to one of the persons cited above, the reforms will also include complete stake sale and privatization of loss-making Industrial Finance Corporation of India (IFCI) and launch of the initial public offer (IPO) for India Infrastructure Finance Company Ltd (IIFCL) within weeks of new government taking charge.

In the first 100 days, privatization of two PSBs, which has been on the back burner, may be revisited and plans laid out for stake sale in more than one general insurer, and possible merger of two or three general insurance companies after recapitalization, said the second person.

Also planned is further consolidation of PSBs to create at least one mega-bank in the short-term. Finance minister Nirmala Sitharaman has mentioned in an interview that India needs more banks that are “maybe three times the size of SBI (State Bank of India). Because SBI is also not in the top 10 (globally)."

This would mean further consolation of PSBs on the lines of one in 2019 where as many as 10 PSBs were merged to create four large banks.

The government will also cut its stake in five PSBs this fiscal to comply with Sebi’s listing guidelines that mandates 75% public float of shares of listed entities within a three-year period. The plan is also to reduce stake in other listed financial institutions including GIC and LIC where tge government may look at issuing follow on public offers.

"The financial services sector is growing at an exponential pace. These steps will attract more private capital thereby making the public sector undertakings more competitive. Disinvestment has worked wonders for the public sector financial institutions in the past and these steps are a welcome change in the context of the prevailing economic factors, in line with the government’s vision for the sector," said Nandini Seth, partner, JSA Advocates & Solicitors.

Two key pieces of legislation -- the Insurance Laws (Amendment) Bill and Banking Regulation (Amendment) Bill -- may also be taken up for parliamentary as soon as the first session post elections, so that changes in law could be implemented within the year. The insurance bill proposes to provide a composite insurance licence, relaxed entry barriers for companies, simplify investment rules and give more powers to the regulator to determine the licence fee structure for companies.

Queries sent to the finance ministry remained unanswered till press time.

"There is a need for government to look at divestment of assets which is to help long term capex. This will help both reduce presence of government in financial sector which is high compared to other countries where private sector pays a larger role and generate cash for government to invest in developing infrastructure," said Shravan Shetty, managing director at Primus Partners.

“It would be useful if there are specific steps undertaken for improving ease of doing business, including by streamlining the standard operating procedures for scrutiny of applications, and increasing the speed at which the applications for infusion of private capital are considered by the regulators," Seth said.

Shetty said that wide ranging reforms should include measures to deepen the bond market and simplify procedures to increase inflow of foreign funds, so that government funding does not crowd out private requirement.

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