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Tainted banks to be barred in selloff process

Mamata Singh

The government has decided that banks against which regulatory authorities have passed orders will be barred from participating as advisors in the divestment process.

The ban will also cover banks whose sister concerns have been named in orders passed by such authorities.

The merchant bankers' job being a sensitive one, they have to be above board. Any bank against whom a regulatory body like the Securities Exchange Board of India, the Reserve Bank of India or the Department of Company Affairs passes orders will therefore be barred from acting as advisors to the government on divestment," said minister of state for divestment, Arun Shourie.

The guidelines for barring merchant bankers from acting as advisors to the government for the divestment process, which have been finalised by the department of divestment specify that the orders need not necessarily be against the merchant banking divisions of these banks. Even if the orders are passed against any sister concerns of such banks, they will be disqualified, he added

However, only the final orders passed by such bodies will be considered for taking action.

A direct fallout of these guidelines is that the DoD will be removing Credit Suisse First Boston from it's position as advisor in the Videsh Sanchar Nigam Limited divestment process.

While the Sebi order was against the capital markets arm of the bank and not against the merchant banking division, the DoD will, as per the norms, disqualify CSFB.

CSFB's involvement in stock market manipulations had put a question mark on it being allowed to handle the task. The divestment department had put off taking a decision pending Sebi's final report.

With CSFB out, SBI Caps will remain the sole advisor of the government in Videsh Sanchar Nigam Limited divestment. "If CSFB is debarred from handling the company's divestment, SBI Caps-- the other partner in the consortium which got the contract--will handle the account on it's own," said official sources.

Officials are of the view that there is no sanctity attached to appointing foreign merchant banks as advisors for privatisation. Moreover, appointing foreign merchant banks has not resulted in any additional international interest in these companies, as had been expected, they said.

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