It would be a tough call that Finance Minister P Chidambaram has to make on reducing the government's stake in state-owned banks from 51 per cent to 33 per cent.
On the one hand, he has to factor in the requirement of banks to raise capital from the market to meet the higher capital adequacy norms prescribed in Basle II, while on the other, he has to keep the sensitivities of the Left parties, crucial allies in the United Progressive Alliance government.
A Bill to amend the Bank Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980 was introduced by the National Democratic Alliance government in 2000. The Bill was opposed by the Left parties and the bank unions.
It was then referred to the Parliamentary standing committee on finance, but was never taken up. Many Bills which were introduced later have since been cleared by Parliament.
Officials said the National Democratic Alliance government, which had introduced the Bill, developed cold feet.
In fact, the NDA government later never tried to impress upon the standing committee to take up the Bill and examine it.
"It was a political hot potato since some of the allies of the BJP-led government were opposed to it. To avoid any embarrassment, the government decided not to rake up the issue," said an official.
With the Lok Sabha dissolved, the Bill would require to be reintroduced in Parliament.
However, even bankers are not quite sure if there was an immediate need to put in place the enabling legislation.
Of the 19 nationalised banks, those such as the Central Bank of India, Punjab & Sind Bank, Indian Bank and United Bank of India, are yet to tap the market. For these banks, the government continues to be the 100 per cent owner.
In the case of banks where the government has off-loaded a part of its holding to the public, there is still sufficient headroom for further dilution.
Though the State Bank of India and its seven associate banks are not covered by the Bank Companies Acts, the government has decided not to touch the legislations governing them.
For instance, in case of the law governing the subsidiaries of the State Bank of India, which is proposed to be amended, the government has decided against lowering the floor on holding below the present 75 per cent.
In case of the State Bank of India, the floor of the Reserve Bank of India holding is proposed to be maintained at 55 per cent, though the central bank's stake stands at 59 per cent.
In fact, the finance ministry is not considering any amendments to the SBI Act for the time being, though various references from the Reserve Bank of India and the State Bank of India have been received.
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