In The Wake of PNBHF Debacle, Centre Asks PSBs To Do All Due Diligence Before Going Ahead With Stake Sale
Moneylife Digital Team 13 July 2021
The union government has directed public sector banks (PSBs) to look into all legal aspects and carry out proper due diligence before going ahead with stake sale of their non-core assets. 
 
A report in ‘The Economic Times’ says that while the government is not keen to interfere in banks’ commercial decisions, PSBs have been nudged that they should follow all due procedures and seek legal opinion wherever required to avoid undue regulatory breaches and consequent delays. The Union government wants all such transactions to be secure and binding from a legal perspective.
 
This comes close on the heels of the controversial Punjab National Housing Finance-Carlyle deal. The deal came under the market regulator Securities and Exchange Board of India (SEBI)’s scanner and the Punjab National Bank (PNB) board had to eventually seek legal opinion. 
 
About half a dozen PSBs are said to be on the verge of selling their stakes in their life insurance and home finance units. Union Bank of India is to divest part of its 30% stake in India First Life Insurance, while Central Bank of India is set to exit its entire stake from Cent Bank Home Finance Ltd. PNB is also looking to divest part of its 23% stake in insurance venture Canara HSBC OBC Life Insurance Co (CHOICE).
 
The government wants its financial institutions to avoid regulatory breaches and related long drawn legal wrangles.
 
A section of government officials believe PNB should have acted immediately when initial concerns were raised by various groups after the deal was announced. But, PNB only reacted after SEBI directed its unit PNB Housing Finance to pause the Rs4,000-crore deal.
 
The bank’s management maintained all through out that that there were no regulatory issues, and it was only after the SEBI order, the bank's board took cognisance of the fact that there are issues and hence a fresh legal opinion was sought. 
 
The ET report quotes government sources expressed their surprise that PNB’s managing director and its chief general manager, who were on the board of PNB Housing Finance, were unaware of the contours of the deal. 
 
“If PNB’s board was not apprised and later due to intervention from the government nominee or any other board member, the bank had to seek a legal opinion and change its stance, that calls for some corporate governance rejig,” the report adds. 
 
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