Date:16/11/2006 URL: http://www.thehindubusinessline.com/2006/11/16/stories/2006111604570100.htm

Tarapore warns against SBI ownership transfer

Our Bureau

`Parliament should block relevant clauses in the Bill'

Ownership transfer
The RBI currently holds 59.73 pc stake in SBI
The SBI Amendment Bill yet to be introduced in Parliament

`WHY THIS TRANSACTION?': Mr S.S.Tarapore, former Deputy Governor, Reserve Bank of India, at the interactive session on `Towards Fuller Capital Account Convertibility' in the Capital on Wednesday. — Kamal Narang

New Delhi , Nov. 15

The former Deputy Governor of the Reserve Bank of India and Chairman of the Committee on Fuller Capital Account Convertibility, Mr S.S. Tarapore, has cautioned against the impending transfer of ownership of State Bank of India from the RBI to the Government.

"An alert Parliament should block the clauses in the SBI Amendment Bill that relates to the transfer of ownership of SBI from the RBI to the Government.

The transfer would be a major setback to the credibility of transparency of the financial sector reform process built up so assiduously over the past 15 years," he said at a FICCI meeting here on Wednesday.

The RBI currently holds 59.73 per cent stake in SBI. The SBI Amendment Bill is yet to be introduced in Parliament.

Mr Tarapore felt that this transfer would aggravate the problem of capital strengthening of public sector banks, as the Government is already finding it difficult to infuse more capital in these banks.

He said that the transfer, which appears to be a mere technical accounting arrangement, is bad in principle and disastrous in practice.

"There should not be a hurried legislation sanctifying the transaction," Mr Tarapore said.

He highlighted that the origin of the proposal to transfer ownership of SBI from the RBI lies in the recommendation of the committee on banking sector reforms (Narasimham II, 1998) that a regulator should not be an owner. "I am afraid that the implementation of this recommendation has been miscued. The spirit of the recommendation was certainly not that one regulator (RBI) should transfer its ownership of SBI to an even bigger regulator (Government) and that too in a cashless transaction," he said.

Mr Tarapore felt that the issue of regulator not being an owner could be resolved in a limited way by adopting the "blind trust approach", which ensures that the owner sits back and does not handle the decisions of the company directly.

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