NEW DELHI: State Bank of India (SBI) on Tuesday received the Lok Sabha's nod to reduce its equity stake in the seven subsidiary banks to 51 per cent.

The approval came through with the House passing the State Bank of India (Subsidiary Bank Laws) Amendment Bill, 2006, by voice vote. The Bill sought to amend the State Bank of Saurashtra Act, 1950, the State Bank of Hyderabad Act, 1956 and the SBI (Subsidiary Banks) Act, 1959.

In reply to a discussion on the Bill earlier, Finance Minister P. Chidambaram said: "The amendment Bill will allow SBI to reduce its stake in subsidiary banks to 51 per cent from the existing 55 per cent". He assured members that the Government would in no case reduce its shareholding in any public sector bank to below 51 per cent and would, thus, continue to retain its majority in voting rights.

"We have abandoned the proposal of the previous regime to take [the Government's] shareholding [in public sector banks] to below 51 per cent,'' Mr. Chidambaram said, while noting that the amendment Bill intended to bring the SBI subsidiaries on a par with other national banks and to help them in raising capital for meeting the capital adequacy norms under Basel-II requirements.

"The SBI group requires a capital infusion of Rs. 3,161 crore to meet Basel-II norms. This capital cannot be infused by the Government,'' he said.

The amendment Bill also sought to raise the authorised capital of the SBI subsidiaries to Rs. 500 crore, permit them to issue bonus shares and increase the number of elected directors representing shareholders to a maximum of three while specifying the criteria for appointment of directors, he said.

Out of the seven subsidiaries, SBI has 100 per cent shareholding in State Bank of Hyderabad, State Bank of Patiala and State Bank of Saurashtra. In the remaining four — State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore and State Bank of Indore — the parent company's stake varies between 75 and 98 per cent.

On a member's suggestion to merge all the seven subsidiaries with SBI, Mr. Chidambaram said there would be strong opposition as all these banks had their regional flavour. "This [merger suggestion] has political, regional and state overtones and we should leave this to discussion at a later stage," he said while pointing out that the new legislation had no provisions to curb their autonomy or interfere with their functioning.

While permitting the expansion of branch network of the seven subsidiaries from the current 4,688 as against SBI's 9,143, Mr Chidambaram said the Bill also proposed to empower the Reserve Bank of India (RBI) to supersede the existing boards of directors for six months on the recommendations of the parent bank.

Besides, as head of the subsidiary banks, it would empower the SBI Chairman to nominate any official of SBI or its subsidiaries to be chairman of the banks.

A full-time chairman would help in improving the functioning of the subsidiary banks, Mr Chidambaram said.

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