The Union cabinet today cleared a proposal allowing the government to acquire all of Reserve Bank of India’s (RBI) stake in State Bank of India (SBI), National Bank for Agriculture and Rural Development (Nabard) and National Housing Bank (NHB). The “cashless transaction” is being done to distance the banking regulator from holding shares in the banks it also regulates.Briefing reporters on the cabinet decision, finance minister P. Chidambaram said “following the Narsimhan Committee report, the Union cabinet has approved the proposal of transfer of RBI stake in RBI, Nabard and NHB to the government in a cashless transaction.”As on 31st March 2006, RBI held 59.73 per cent of shares in SBI’s Rs 314.14 crore paid up capital. In Nabard, which has a paid up capital of Rs 2,000 crore, RBI holds 72.5 per cent, while in NHB’s Rs 450 crore paid up capital, it holds the entire equity.While SBI is a listed entity and the share transfer of RBI in SBI is expected to be completed by June 2007, the exact value of the share will be worked out while affecting the actual transfer.The value per share will be based on SBI’s market price in accordance with Securities and Exchange Board of India (Sebi) guidelines. The actual acquisition cost for the stake transfer is expected to Rs 40,000 crore and this calculation has been made based on the reference price of Rs 1,300 as per Sebi formula. The SBI stock closed 5.5 per cent higher at Rs 1,203.However, the RBI is also a government institution and will, therefore, pay back whatever it gets for the transfer of its stake in three institutions. The FM said, “It will be a book entry transaction, as whatever I pay to RBI, I will get back.”Since Nabard and NHB are not listed entities, the cabinet decided that RBI shareholding in these two companies can be transferred at an appropriate time but by June 2008 at book value.With this transfer in place, RBI will be able to focus on its regulatory and supervisory functions and will also remove the potential conflict of interest in due discharge of its duties as the banking regulator and also having ownership of the financial entities.
