India approves bank divestment plan

Bank workers went on strike against privatisation

The Indian Government has approved legislation to reduce its majority stake in state-run banks to 33%.

The legislation will be introduced in parliament during the winter session, which begins next week.

Mahajan: Public sector character will not be lost

Banks in India were nationalised in 1970, but the government approved a reduction in equity from 100% to 51% in 1994.

Labour unions have opposed any further reduction, saying it could lead to privatisation and job losses.

They held a strike on Wednesday in protest at the plans.

No threat

Cabinet spokesman Pramod Mahajan said the new legislation did not mean that the "public sector character of the banks" would be lost.

"Dilution of government stake would be through public offers alone and not through strategic partnerships," he was quoted as saying by the French news agency, AFP.

Indian banks

Nationalised in 1970

Government reduces equity to 51% in 1994

Government proposes to bring equity down to 33% in 2000

Mr Mahajan said the new bill had provisions preventing any one group or individual from taking more than one per cent equity.

"This would help the government retain control," he said.

The government will also decide on who the chief executive officer of directors of the banks will be.

Raising funds

Mr Mahajan said the legislation will allow the banks to seek additional funds from the markets, but it was not mandatory for them to do so.

Six of the country's 19 state banks are still completely government-owned, despite the 1994 decision.

The new legislation will also have no impact on the country's largest commercial bank, the State Bank of India, and its seven associate banks.

The country's central bank, Reserve Bank of India, has a 56.5% stake in the State Bank of India.