Mumbai: The planning commission has suggested a reduction in the government stake in public sector banks to 33 per cent from the present level of around 70 per cent.

In a report presented to prime minister Manmohan Singh, the commission also suggested a gradual lifting of monetary curbs and measures to allow foreign investors own a larger share in private sector insurance firms and consolidation in state banks to boost service sector reforms.

At present, the government keeps at least 51 per cent majority stake in the public sector banks.

"In the medium term, the ability of these banks (public sector) to raise capital for growth without reducing the government shareholding to less than 51 per cent will be severely constrained," the report by a high-level group of the planning commission said.

The group, headed by planning commission member Anwarul Hoda, also suggested a gradual reduction in the statutory liquidity ratio (SLR) and cash reserve ratio (CRR) of banks, aligned with an appropriate globally benchmark.

The statutory liquidity ratio is the level of deposits that banks must hold in government securities. The ratio is currently 25 per cent.

"With the moderation in the fiscal deficit and government borrowing requirements, and the overall improvement in the efficiency and health of the financial system since the 1990s, there is a strong case for gradual reduction in SLR in line with other markets," the report said.

"Similarly, CRR which has been increased several times recently as a monetary measure, may be aligned over time with an appropriate globally benchmarked level," it said.

The government, the report further said, should consider allowing foreign investors to own a larger share in private sector insurance firms and usher in consolidation in state banks to boost service sector reforms.

The high-level panel selected six sub-sectors of the service sector: information technology and IT enabled services, tourism, shipping, health services, financial services and retail trading.

The panel on services was set up to suggest measures to improve and sustain competitiveness of the sector, which accounts for more than 50 per cent of the country's gross domestic product.

The government favours raising foreign investment in the insurance sector to 49 per cent from the current 26 per cent, but that has been strongly resisted by its communist allies on the grounds it will involve major job losses.

The panel noted that certain key recommendations of the Narasimham Committee on banking reforms remain unimplemented.

"The Narasimham Committee had recommended that the minimum government ownership in these banks be reduced to 33 per cent and the banks should become board-managed companies," it said.

The sub-group of financial services had ICICI Bank managing director and CEO K V Kamath and HDFC Bank managing director Aditya Puri as members.