Govt to ease controls on banks without cutting stake below 50%

The government is considering reforms in the banking sector but not at the cost of its control on the public sector banks as recommended by the P J Nayak committee, G S Sandhu, secretary to the department of financial services, said.

He said the government has rejected the Nayak committee's recommendation that the government should lower its holding in banks below 50 per cent, although it is considering providing greater autonomy to state-run banks. 

"That particular part of the P J Nayak Committee has not been favourably considered because we want to keep the shareholding of the government at minimum 51 per cent," Sandhu said.

"It has been clearly announced in budget also that the government wants to maintain public sector character of the banks," he said on the sidelines of an event organised by PHD Chamber of Commerce and Industry.

The government, however, is considering issues related to greater autonomy to state-run banks, including separating the post of chairman and managing director and giving them a fixed term of five years, he said

The government is also inclined to raise the tenure of chairman and managing directors (CMDs) of banks, he said.

Besides, he said, better quality of independent directors with domain knowledge is also one of the proposals for strengthening of boards.

The government may also specify criteria such as educational qualifications and experience for independent directors appointed to bank boards to improve corporate governance, he added.

The reforms are aimed at improving the functioning and competitive edge of the public sector institutions that account for 70 per cent of banking industry assets.

RBI set up a committee under chairmanship of former Axis Bank chairman P J Nayak to review governance of bank boards in India. It gave various recommendations, including diluting government stake below 50 per cent.

Sandhu said the Finance Ministry would come out with detailed blue print for disinvestment of the public sector banks in a month or two.

Public sector banks requires Rs2,40,000 crore of equity capital over next five years to comply with Basel-III norms.