Budget 2021 not only had loads of goodies on the privatisation front, it also has taken special efforts to expedite the process of legislative amendments to enable the government shed stakes in both Life Insurance Corporation and IDBI Bank.
A day after the Budget was presented in Parliament, Debashish Panda, Secretary, Department of Financial Services, shared the various aspects of changes related to financial services sector introduced through the Finance Bill 2021. Excerpts:
Why use the Finance Bill to bring amendments in LIC Act?
The last Budget had announcements about LIC IPO and IDBI. The Finance Minister made announcements this time too. We had to bring necessary legislative changes. For LIC, we have brought 26-27 consequent amendments through the Finance Bill. The LIC Act 1956 did not have provisions for listing or how shares will be distributed.
In both LIC and IDBI, the Consolidated fund of India will receive the funds. So it becomes part of the money bill and to expedite the process, the changes has been put as part of Finance Bill – which is a money Bill.
Will the intent be to corporatise LIC under Companies Act or will it remain a corporation even after listing?
No, the Life Insurance Corporation of India Act will remain. The character of LIC will remain. We are only enabling compliance with listing regulations and allowing shares to be issued. We are specifying an authorised capital (₹25,000 crore from the current level of ₹ 100 crore) and detailing the Board structures etc in the amendments
How much will the government look to dilute in LIC? Will it be 5 per cent or 10 per cent?
It is for the DIPAM (disinvestment department) to take a call on this. We are looking at other aspects like getting the legislative changes done, get embedded value calculated, appointing actuarial consultants for this etc. Based on the embedded value, the enterprise value will be calculated and then listing will happen. I cannot say anything about the timing.
What was the purpose of going in for a new Development Financial Institution when you could have used an existing entity?
The proposed government-owned DFI — National Bank for Financing and Infrastructure Development — will play a catalytic role in development of the corporate bond market. It will also be a market maker and do technology-based monitoring of projects – which is missing in today’s infrastructure financing. The first pillar of this new DFI is the developmental role while financing role will be its second pillar. Going forward, the government may even look to bring down its holding, in this DFI, to 26 per cent. The new DFI Bill will also open the doors for private owned DFIs to enter this space. IIFCL can also be subsumed for a quick start as it already had domain expertise and trained manpower in this field. This new DFI will start a post Covid-19 new investment cycle in project financing. It will anchor the new ₹111-lakh crore National Infrastructure Pipeline of projects for the next five years.
Budget has proposed a new structure of ARC and AMC to deal with bad loans of public sector banks (PSBs). Will government put money in these entities towards capital?
The government will not and has no plans to put any equity in the new mechanism. It is for the banks to come together and set them up. The bad assets will get transferred from the banks to the ARC entity at net book value (book value-provision made) and as consideration for this 15 per cent cash and 85 per cent securities receipts will be issued.
Budget has proposed privatisation of two PSBs. Will the exiting prompt corrective action banks be eligible as candidates for privatisation?
All of them are eligible. It could be anyone from one to twelve PSBs. The three level of committees as mentioned in the recently approved policy – NITI Aayog, core group of secretaries and alternate mechanism. Also the banks that are now under prompt corrective action have been doing well in recent months and hopefully could come out soon.
Will government ask LIC to join the centre in shedding stake in IDBI Bank?
That will be for the LIC Board to take. It is not for us to determine how much and when they should sell.
So what is the purpose of bringing amendments to the IDBI repeal Act?
The main purpose is to take care of the licensing issue and how it should be dealt with if the control of the bank changes hands.