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Govt panel backs pvt cos, wants SBI and LIC to lose ‘privileges’

Suggesting a level playing field for financial sector entities, a government appointed panel has made a strong pitch for converting SBI, LIC and few other firms into ordinary companies under the Companies Act.

The existing laws which provide special privileges to entities like State Bank of India (SBI) and Life Insurance Corporation (LIC) should be either amended or repealed 'to create a level playing field between regulated entities, irrespective of their ownership structure', it said.These recommendations form part of the Financial Sector Legislative Reforms Commission (FSLRC) report, which was submitted to Finance Minister P Chidambaram earlier this month.Besides SBI and LIC, the other financial institutions which are governed by special laws include associate banks of SBI, EXIM Bank, National Housing Bank, NABARD, SIDBI and General Insurance Corporation.

'The undertakings of all statutory institutions should be transferred to ordinary companies incorporated under the Companies Act, 1956 and their regulatory treatment should be identical as that applicable to all other financial companies,' the FSLRC report said.

The legislative backing confers special privileges to such institutions, it said.

The existence of special law, according to the report, gives 'an unfair competitive advantage in favour of LIC as many customers would tend to choose its policies over those offered by private insurers on account of the Government guarantee'.

The government had earlier converted financial institutions like IFCI, IDBI and UTI into companies under the Companies Act.


The Finance Ministry has asked public sector banks to limit the amount of loan write-offs and sought details of recoveries made by them in the six years ending 2011-12 with an aim to improve the finances of PSU lenders.

It has also asked the banks to ensure that the amount written off by banks as bad loans does not exceed the cash recovery made during the year.

'In case there is more write off than the recovery made by the bank in a given year, the reasons for the same may also be provided (to the Ministry),' the Finance Ministry said in a recent communication to the heads of all public sector banks.

The Ministry also sought details of 'recovery made and prudential write offs category (with number of accounts and amount involved) for the period 2006-07 to 2011-12'.

Concerned over the rising bad loans, Finance Minister P Chidambaram in a review meeting with PSU bank chiefs earlier this month had asked them to take firm steps against affluent promoters to recover loans from sick companies owned by them.The warning comes in the backdrop of several companies, including liquor baron Vijay Mallya's Kingfisher Airlines, unable to repay bank loans on time.

Gross NPAs of PSU banks have risen from Rs 71,080 crore as on March 2011, to Rs 1.55 lakh crore as on December 2012, of which corporate accounts constitute 53.68 per cent.Of this, about 172 corporate accounts constitute NPAs of more than Rs 100 crore at the end of December 2012.


In order to protect customer interest, regulators in financial sector and consumer protection bodies need to keep a close watch on product design as well as financial innovation, RBI Deputy Governor K C Chakrabarty has said.

'Financial sector regulators/supervisors and consumer protection bodies need to keep a close watch on product design and financial innovation in order to ensure that these are oriented towards consumer needs and expectations,' Chakrabarty said recently in an event on Financial Consumer Protection.He said financial service providers should treat their customers fairly to protect them from vulnerabilities.

'The possible solution to insulate consumers from vulnerabilities is by ensuring that the financial service providers treat their customers fairly. The financial institutions must understand what fair and equitable treatment of customers means and then align their business practices to achieve the desired outcomes,' Chakrabarty said.

He emphasised that individual financial service providers should also have internal frameworks for vetting new product offerings so as to ensure that they are in alignment with regulatory requirements and consumer expectations.

  • SBI & its associate banks, EXIM Bank, LIC, GIC, National Housing Bank, NABARD, SIDBI should be turned into ordinary firms incorporated under Companies Act, 1956

  • Their regulatory treatment should be identical to that applicable to all other financial companies irrespective of their ownership structure

  • The govt had earlier converted some financial institutions like IFCI, IDBI and UTI into entities under the Companies Act
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