Sale of RBI's stake in NHB and NABARD to GoI.

News In Brief 

The Reserve Bank of India (RBI) divested its entire stake in National Housing Bank (NHB) and NABARD to the Government. 

RBI had 100 % stake in NHB which was divested for Rs. 1450 Crore and it also held a 72.5 % stake in NABARD  worth Rs. 1450 crore, of which 71.5 % amounting to Rs. 1430 crore were divested already (in 2010), and the remaining stake of Rs. 20 crores were sold in Feb 2019.

With this divestment, now the Government of India holds a 100 % stake in both the financial institutions and acquired full ownership.

Why RBI sold its entire stake or Equity?

RBI is the regulator and supervisor of the entire monetary system which includes banks and financial institutions. It also held stakes in National Housing Bank (NHB) and NABARD. So, as a stake holder it has to think for business expansion and profit maximization and as a regulator,it has to think for effective regulation of such entities. Thus this will leads to conflicts in policy decision and interests.

 
So, in order to strengthen the regulatory frameworks for effective regulations the central bank (RBI) divested its entire stake in NHB and NABARD to the Government and this is done on the basis of Narasimham Committee –II Recommendations.

Narasimham Committee -II (1998) Recommendation on Reform in the Role of RBI.

The second Narasimham committee proposed segregation of the roles of RBI as a regulator of banks and owner of Bank.

It highlighted that for effective supervision it has to divest its holding in banks and financial institutions.