Strategic Disinvestment of IDBI Bank
Source : PIB
GS III : Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment
Why in News ?
Cabinet Committee on Economic Affairs has given its in-principle approval for strategic disinvestment along with transfer of management control in IDBI Bank Ltd.
- In the Budget for 2020-21 Union Finance Minister had announced the government’s balance shareholding in IDBI Bank would be sold to private, retail, and institutional investors through the stock exchange.
- In March IDBI Bank was removed from the RBI’s Prompt Corrective Action (PCA) framework after nearly four years, on improved financial performance.
What is Strategic Disinvestment ?
- Strategic disinvestment would imply the sale of substantial portion of the Government shareholding of a central public sector enterprise (CPSE) of upto 50% or such higher percentage as the competent authority may determine, along with transfer of management control.
- It is done so by the government in order to relieve itself the burden of maintaining a non-performing public enterprise.
- It aims with the concept Disinvestment would boost the economy through more revenue to the government, which could be invested in the economy further.
- The inefficiency and losses incurred by PSUs over the last years disinvestment is a good step.
- Differ from Privatisation : Privatization is when the entity is completely handed over to a private company.
Key Facts
- Government of India (GoI) and LIC together own more than 94% of equity of IDBI Bank (GoI 45.48%, LIC 49.24%).
- LIC is currently the promoter of IDBI Bank with Management Control and GoI is the co-promoter.
- LIC’s Board has passed a resolution to the effect that LIC may reduce its shareholding in IDBI Bank Ltd.
- It is expected that strategic buyer will infuse funds, new technology and best management practices for optimal development of business potential and growth of IDBI Bank Ltd.
- Resources through strategic disinvestment of Govt. equity from the transaction would be used to finance developmental programmes of the Government benefiting the citizens.
Prompt Corrective Action (PCA)
- Prompt Corrective Action or PCA is a framework under which banks with weak financial metrics are put under watch by the RBI.
- The PCA framework deems banks as risky if they slip below certain norms on three parameters capital ratios, asset quality and profitability.
- PCA is intended to help alert the regulator as well as investors and depositors if a bank is heading for trouble.
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