The key word was ‘control’, not regulation. Opposition to privatisation of public sector enterprises isn’t about strategic sectors and market failure. It is about losing control. How else can one have loan melas or instruct banks to lend to preferred entities? The heights of the economy became the depths.

On August 16, 2005, finance minister of state (S.S. Palanimanickam) introduced the Banking Companies (Acquisition and Transfer of Undertakings) and Financial Institutions (Amendment) Bill, 2005 in Lok Sabha. He said, “With your permission, I may say that this is not adulteration. It will definitely strengthen the concept of nationalisation of banks. Even after these amendments, the nationalised banks will retain their public sector character with the government continuing as a majority shareholder. The government would continue to appoint the chief executive and other wholetime directors. It would also continue to nominate the non-official directors other than those elected by the shareholders. It would continue to approve the regulations to carry out the objectives of the Act. It would retain the power to issue directions in regard to the matter of policy involving public interest. Parliamentary control over these banks would continue as of now.”

Precisely. Let’s not think of shareholders and board of directors. Public sector banks (PSBs) aren’t companies under the Companies Act. They lost their company character with nationalisation. Whether government equity is 51 per cent or 33 per cent or 0 per cent is irrelevant.

The Bill became law in September 2006. Before that there was at least some semblance of independence, because shareholders (other than Central government) could appoint some directors. Without getting into the nitty-gritty of law, September 2006 wrought havoc in many ways. First, since government equity was declining and public shareholding increasing, the number of independent directors was slashed by half. Second, possibility of nomination from Sebi, Nabard and public financial institutions was removed. Third, the number of full-time directors was doubled (from two to four). Fourth, “excess” directors were made to retire, on a first-in first-out criterion, that is, on basis of seniority. Fifth, Sebi’s attempt to push corporate governance was a problem, since Sebi’s suggested draft amendment to Clause 49 of the Listing Agreement proposed that directors nominated by government or public financial institutions wouldn’t be counted as independent directors.

... contd.