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Budget 2021: What is Bank Investment Company?

The Centre's stake in some of the state-run banks, including Life Insurance Corporation of India's stake, has risen above 90 per cent. Consequently, the Centre can either abstain from capital raising plans of these banks or set up a BIC

twitter-logoBusinessToday.In | February 1, 2021 | Updated 05:46 IST
Budget 2021: What is Bank Investment Company?
Finance Minister Nirmala Sitharaman will present Union Budget 2021-22 in Parliament today

The government is likely to announce constitution of a Bank Investment Company in the upcoming Union Budget 2021-22, to be presented on February 1.

The P J Nayak Committee had in 2015 recommended that the Bank Nationalisation Acts of 1970 and 1980, together with the SBI Act and the SBI (Subsidiary Banks) Act, be repealed, all state-run banks be incorporated under the Companies Act, and a Bank Investment Company (BIC) be constituted to which the government transfers its holdings in banks. The government's powers in relation to the governance of banks should also be transferred to BIC.

The Centre's stake in some of the state-run banks, including Life Insurance Corporation of India's stake, has risen above 90 per cent. Consequently, the Centre can either abstain from capital raising plans of these banks or set up a BIC.

"The second option (BIC) is now being weighed up and is likely to form a part of the Budget proposals upon positive outcome of the deliberations," the Business Standard quoted a source as saying.

Discussions between the Reserve Bank of India and the Centre on the issue have been continuing since June 2020, with the Indian Banks' Association also being a part of some of the discussions.

The government is also likely to simultaneously begin the process of amending the Bank Nationalisation Acts of 1970 and 1980, and the SBI Act of 1955 to bring the banks out of them. Once that is done, the government can transfer its stake in state-run banks to BIC either together or in a graded manner.

Initially, the BIC will be a wholly-owned entity. However, it would later be brought under public-private partnership model, with government stake falling below 49 per cent.

Also Read: Union Budget 2021: Share market expectation on Budget Day; key factors that will guide D-Street

Also Read: Budget 2021: Earn less than Rs 10 lakh? Here's what you can expect

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