Govt may consider lowering stake in PSU banks to 52%: Jaitley

Finance minister Arun Jaitley The government may consider reducing its stake in state-run banks to 52 per cent and give more operational freedom to public sector banks, finance minister Arun Jaitley said on Monday.

Speaking at a banking conference, the finance minister said the government may consider reducing its stake in public sector banks (PSBs) to 52 per cent, giving additional financial strength to banks themselves.

''We have come up with a re-capitalisation programme for the next four years and hopefully this would induct capital strength in to the banks and improve their capacity'', Jaitley said.

He said a new law for fast track arbitration to address the stressed areas of the banking sector is on the anvil. Efforts are also on to give shape to the proposed banking bureaus and to professionalise all personnel issues.

The government is also expected to finalise a draft bankruptcy code at the end of this month or in early October, Jaitley said, highlighting concerns over the levels of distressed debt in the banking sector.

State-owned lenders have struggled to recover mounting bad loans, mainly from sectors such as steel, power, highways and discoms, using available mechanisms because of the lack of a bankruptcy code.

The finance minister said the banks cannot be expected to bail out the defaulters. He observed that very few states had carried-out power sector reforms and the situation would not improve unless the users were made to pay for the electricity consumed. Jaitley informed that the Reserve Bank of India has already put four state governments' on notice. The combined debt of discoms is estimated to be more than Rs3,00,000 crore, leading to acute financial stress in the banking sector.

Jaitley described the problems of the steel sector as being on account of external factors, where cheap imports are hurting the domestic industry.  He said much progress had been made in the highway sector and the projects were being implemented without major bottlenecks.

He said a review of stalled projects was now being done at the Prime Minister's Office level and road blocks were being specifically addressed. The finance minister asserted that the number of stalled projects has decreased considerably.

The finance minister said the government has made considerable progress in addressing the issue of ease of doing business. He said an exit policy is in final stages of preparation and the draft will be put out for deliberations early next month.  He also said the proposed new arbitration law provides for fast track arbitration with one member arbitration board, with a mandate to complete the entire process within six months.  Jaitley also said the working of  dispute resolution tribunals (DRTs)s was being speeded up by moving most of the transactions online.

Jaitley reiterated the government's commitment to give operational freedom for the PSU banks. ''The public sector banks (PSBs) have to be given a lot of independence. Of course, they will be carrying out the developmental agenda of the government, but their administration has to be based purely on banking considerations'' the finance minister said.

Jaitley also said that a high level committee headed by Justice A P Shah, former chairperson of the Law Commission, is looking into the options available for public sector banks (PSBs) to recruit the best talent from the market.

''Efforts are on to give shape to the Banking Bureau and to professionalize all personnel issues,'' he said.

Jaitley, however, noted opined that the brick and mortar branches may probably lose some relevance in future with alternative internet based channels emerging.

Earlier, Chanda Kocher, CEO, ICICI Bank, spoke about the challenges being faced by the banking sector in the country.