The government may clarify the application of the Central Vigilance Commission (CVC) oversight over the IDBI bank before it initiates the process to exit the bank by selling its entire stake to private players.
The move is expected to prevent a tepid response to the share sale plan, as cumbersome vigilance oversight is seen as a big negative by investors who feel that the RBI, as a single regulator for the sector, is enough to ensure smooth and transparent functioning of the banks.
Presenting the Budget proposals FY21, Finance Minister Nirmala Sitharaman has said that the government will exit from IDBI bank by selling its entire equity to private players.
Sources said that government may seek opinion of the Law Ministry again on whether the now privatised IDBI bank should be considered a state - run financial institution or a private entity as classified by the Reserve Bank of India (RBI).
This would also clarify whether CVC oversight on the bank for all matters would apply or not.
The CVC is mandated to maintain vigilance oversight over public sector banks and financial institutions.
Private sector banks, however, are out of its purview, but are subjected to statutory audits from the RBI.
IDBI, set up in 1964 under an Act of Parliament, is regarded as a public financial institution.
But the government has now ceded its management control in the firm, hence there is confusion about the status of the bank.
Following a cabinet decision in 2018, the LIC in January 2019 completed acquisition of 51 per cent controlling stake in the bank by infusing Rs 20, 800 crore, making it the lender's majority shareholder.
Following this, the government shareholding in the bank has fallen to 47. 11 per cent.
The RBI, however, has classified the bank as a private sector lender for regulatory purposes.
"In my opinion, the IDBI is a government bank as the Centre still is in complete control of the lender through direct equity and indirect holding through LIC, another state - run institution.
As regards to CVC oversight, the 2016 Supreme Court order makes it ample clear that officers of private banks are also public servants when it came to the Prevention of Corruption Act (PCA), 1988.
So, in all PCA related cases, CVC would have a role in both private and public sector banks, " said former Vigilance Commissioner T. M. Bhasin.
But so far, private banks continue to remain outside the CVC's purview.
In fact, the CVC had earlier urged the Prime Minister's Office to bring private sector banks under its watch, citing the fact that they have been involved in many instances of malfeasance.
INDBI Bank has been perpetually in losses with the lender reporting a loss of Rs 3, 458 crore in the second quarter of current fiscal, its 12th successive quarterly loss.