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Current Affairs

RBI divests its entire stake in NABARD, NHB

Date: 25 April 2019 Tags: Financial Institutions

Reserve Bank of India (RBI) has divested its entire stake held in National Housing Bank (NHB), regulator for housing finance companies and National Bank for Agriculture and Rural Development (NABARD) to Central Government. With this divestment, the government now holds 100% stake in both these financial institutions

Reasons of Divestment

Divestment of RBI’s stake in NHB and NABARD was part of ending cross-holding in regulatory institutions and follows recommendation of second Narasimham committee report of October 2001, which had noted that RBI could not own those entities which are regulated by it. Besides, RBI's own discussion paper on same entitled ‘Harmonizing role and operations of development financial institutions and banks’ also had recommended same.

Background

RBI had 72.5% stake in NABARD, amounting to Rs. 1,450 crore. It was divested in two phases-71.5% worth Rs. 1,430 crore in October 2010 and remaining residual shareholding in February 2019 for Rs. 20 crore. RBI was owning 100% stake in NHB, which was divested in March, 2019 worth Rs. 1450.

The current change in the capital structure of both these financial institutions was brought in by Government through amendments to NABARD Act, 1981 and NHB Act, 1987 which were notified on January 19, 2018 and March 29, 2018, respectively.

NABARD: It was established in July 1982 by transferring agricultural credit functions of RBI and refinance functions of then Agricultural Refinance and Development Corporation. It was set up with an initial capital of Rs 100 crore.  Its paid up capital was Rs. 10,580 crore as of March 2018.

NHB: Its establishment was announced in 1987-88 Budget. Following that, the National Housing Bank Act was enacted by Parliament. National Housing Policy of 1988 also had envisaged setting up of NHB as apex level institution for promoting the housing sector.