It is strange that the Government disregards laws meant for the public in true spirits; how can one look forward to good compliance by others of the laws of the land? Under the Indian Companies Act, it is prohibitated for a Corporate to finance or provide funds to the sharelder(s) for the acquistion of the shares. Last time, the State Bank (admitted it is NOT incorporated under this Act) augmented its Capital , the GOI issued a special bonds which was solely subscribed by the SBI and with the proceeds of this bonds, the GOI subscibed its shares of the right issue ! How can such book entries be preferred to augment the Capital once again this year also ?
If the book entries are only source of the scarce resources, there are better alternative, eg., the GOI may issue special bonds to other PSU banks and utilige the funds to subscibe the right issue of the SBI and similarly proceeds of special bonds issued to the SBI being used to subscribe the right issue of other PSU. Best choice would be an enactment to issue the GOLDEN share with absolute management control to the GOI and further issue of diluated (with less voting right) shares in such banks/insurance companies/other companies as the Parliament may approve from time to time.
How is that the RBI not taking a view in such irrational capital augmentation? It is going to harm Indian Banks standing in overseas in the long terms .
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