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  3. Govt rejects RBI’s panel view of cutting govt stake below 50%

Govt rejects RBI’s panel view of cutting govt stake below 50%

15 Jul 2014 Evaluate

The government has rejected P J Nayak committee recommendations of lowering government holding in banks below 50 percent. Department of Financial Services Secretary G S Sandhu has asserted that the government wants to maintain public sector character of the banks and thus want to keep shareholding of the government at minimum 51 percent in PSU banks. However, the government is considering issues related to greater autonomy to bank including raising tenure of Chairman and Managing Directors (CMDs) of banks to five years and better quality of independent directors with domain knowledge for strengthening of board. In order to comply with Basel-III norms, public sector banks requires Rs 2,40,000 crore of equity capital over next 5 years. Further, G S Sandhu added that the government would disinvest in two or three PSU banks in the current fiscal and would come out with detailed blue print for disinvestment within the next two months. 

The RBI has set-up a committee under chairmanship of former Axis Bank chairman P J Nayak to Review Governance of Boards of Banks in India. The panel’s report criticized the way in which the lenders are currently being governed and suggested the government to cut its holding in public sector banks to below 50 percent. The panel further highlighted that if the Government reduces its stake to less than 50 percent, together with certain other executive measures, all these external constraints would disappear. Further, the move would also benefit the government as it would continue to be the dominant shareholder and create a condition for its banks to compete more successfully. Further, the report added that bank Investment Company should be constituted where the government holding in all the banks should be transferred. The panel also recommended the government to take some radical reforms to improve the selection process for directors in the state run banks.

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