The Reserve Bank of India (RBI) reportedly wants the government should reduce its stake in state-controlled banks to 26% and provide their bosses longer tenure in order to manage these financial organisations in a more professional manner, and the banking regulator suggested these measures in a presentation to PM Modi. At present, the Centre’s stake in public sector banks goes beyond 50%.
Amid a disruption caused by the COVID-19 pandemic, in a meeting with top bankers on Wednesday, PM Modi had asked the country’ top lenders to fund bankable proposals, undeterred by the toxic loans generated in the past, and pledged to fully back the executives.
“Bringing down the government’s stake in public sector banks to allow them to be run more professionally was one of the things discussed,” a person with knowledge of the matter said. Plus, he mentioned that it was recommended that the Centre should retain major control over the state-run banks. It might need fresh legislation to reduce the government stake to 26%.
Chiefs of the central bank, Shaktikanta Das, Securities & Exchange Board of India (Sebi), Ajay Tyagi, and Insurance Regulatory & Development Authority of India (Irda), SC Khuntia, discussed the matter with the Modi via video-conferencing on Thursday.
During an hour-long presentation to the prime minister, each regulator presented a view of the current situation and an evaluation of programmes undertaken during the pandemic. The Centre has, however, said it will hold a stake of minimum 52% in PSU banks.
More importantly, it was recommended that managing directors and CEOs of state-owned banks should have a tenure of three or five years and remuneration should be on a part with private sector bank.
In the wake of the coronavirus-induced disruption, the government has hiked its borrowing target for the current fiscal year to Rs 12 lakh crore from Rs 7.6 lakh crore in the Budget.
Modi also received suggestions on the monetisation of public assets to raise funds. The Centre should bring foreign investors through infrastructure investment trusts (In-VITs) as was being implemented in the case of National Highways Authority of India (NHAI) and Power Grid Corp of India, the financial daily mentioned.
The publication quoted a source familiar with the discussion as saying, “There were discussions around whether it was a good time to disinvest or should the government wait longer.”