MUMBAI, Oct 6: The union government has no immediate plans to amend the SBI (subsidiaries) Bank Act, according to additional banking secretary CM Vasudev. Under the Act, only the parent bank, state governments, public corporations, co-operatives and trustee bodies can hold more than 200 shares in the associate banks.Individuals holding more than 200 shares do not have voting or dividend rights. This restricts the ability of the banks to raise capital from the public beyond a point.

According to Vasudev, the "State Bank should first settle the issue of giving operational freedom to the associate banks. That is more important." "If three SBI associate banks can float public issues despite the fact that the Act has not yet been amended, it is certain that there is no legal problem in accessing the market," Vasudev said.

The three SBI associates which plan to tap the market over the next two months are State Bank of Bikaner & Jaipur, State Bank of Hyderabad and State Bank of Travancore.

"They (the SBI subsidiaries) can solve their capital adequacy problem-if any-by entering the market even though the amendment has not taken place. I do not see any reason why it should be amended... No draft (of the amended Act) has yet been placed in parliament.." Vasudev told journalists at the Bank Economists' Conference in Mumbai on Monday. According to the additional secretary, the SBI "should first offer functional autonomy to its associates. It's the same principle.... The government which owns the banks is considering giving them operational freedom.... This is a moreimportant issue than amendments to the Act," Vasudev said.

The ministry's stand on the issue is likely to deal a blow to the asset expansion plans of the SBI associates. They will not be able to expand their risk-weighted assets unless they expand their capital bases by accessing the market. This will be tough unless the stipulation on the face value of the share (Rs 100) and the cap on individual holdings are removed.

Senior State Bank executives refused to be "dragged into any controversy" by commenting on the issue. "As far as we know, this (issue) has been pending with the ministry for over two years now... both the finance ministry and the ministry of law know about it", an SBI source said under condition of anonymity. The State Bank propped up the capital base of its associates by floating subordinated debt and rights issues in 1995-96 and 1996-97. Three of the associates finally decided to enter the capital marekt this fiscal even though the government has failed to amend the Act. Subsequently, one associate bank has put on hold its issue indefinitely due to the trade unions' insistence on firm allotment of shares for all employees.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.