The government reiterated that there was no proposal to dilute its ownership in public sector banks (PSBs) below 50%. This clarification came from State for Finance Nirmala Sitharaman after protests of major bank trade unions against the implementation of the recommendations of the (P J Nayak) Committee including dilution of government ownership.
In what could have been the game changer for state run banks, a RBI committee headed by P.J. Nayak, former Chairman and CEO of Axis Bank in early May floated the draft recommendations on governance changes for PSU banks and revamping their ownership structure, for steering these banks through their present difficult phase, marked by inferior financial parameters, accelerating stressed assets and declining market share. Among other suggestions of the panel there was suggestion of elimination of dual control over PSBs, upgradation of the quality of board deliberation and setting-up of the Bank Investment Company (BIC).
The panel recommended the Centre to distance itself from the governance of banks and the Bank Nationalization Acts of 1970 and 1980, along with the SBI Act and SBI Subsidiary Banks Act, be repealed as it finds “the selection process for directors is increasingly compromised”. However, government ruled out such draft recommendations and said that there was no proposal yet to dilute government’s ownership in PSU to below 50%. However, with the fears of implementation of watered down version of this report or its non-implementation, the committee also suggested in the absence of such reform, or piecemeal and non-substantive reform, it was unlikely that there could be material improvement in the governance of these banks.
Further, Sitharaman stated that gross NPA of the public sector banks increased by 39% to Rs 2,16,739 crore at the end of March 2014 from Rs 1,55,890 crore a year ago. At the same time, private sector banks witnessed 13.6% rise in gross NPA to Rs 22,708 crore at the end of March 2014 from Rs 19,986 crore a year ago.