The government should consider allowing public sector banks to raise funds through private participation beyond 49 per cent, keeping only some key banks under state control, former Reserve Bank Governor C Rangarajan said. This would make capital available to strengthen a few banks for the interest of the country.
Speaking about the current trends in finance and economics at the International Conference on Finance and Economics (ICFE 2017), organised by Loyola Institute of Business Administration, Rangarajan, who is also the former chairman of The Prime Minister's Economic Advisory Council (PMEAC), said "My own advice would be to keep some of the key banks under the control of the State, provide adequate capital from the system, and let the others be privatised or be allowed to increase capital by private participation beyond 49 per cent".
"This is not an ideological argument, but a purely pragmatic one that says the ability of the system to provide additional capital to keep up with the growth of the banking system would be very difficult. Therefore let us make capital available only to strengthen a few limited banks and carry on. That would be in the best interest of the country," he added.
"If public sector banks have to expand their activities, they need additional capital and since the government holds 51 per cent share in them, 51 per cent of the addional capital will have to come from the government. But there has to be a limit on how much capital the government can put in. The banking system itself needs some radical change," Rangarajan averred.
For the revival of the economy, the country need to find out the ways and means to breathe life into those stalled projects that can be activated. While some of the stalled projects has become unviable, those that continue to be viable need to be attended to quickly. A haircut is inevitable when it comes to non-performing assets (NPAs).
Rangarajan said that the economy of the country has seen a decline in growth rate during the last two quarters due to some temporary measures, but there is some underlying trend which is pulling down economic growth in India. The growth in 2015-16 was at 8 per cent and in 2016-17 there has been a decline. In the year 2017-18 also, the growth rate would be at 6.5 per cent, but the growth rate in many countries are well below this.
"In fact, the United States is not talking about even two per cent growth, but around 1.8 per cent. It was earlier growing at 1.4 per cent. Our growth rate has come down, but it is still higher than many other countries. Without looking at other countries, from our own experience, we know that growth has slowed down and needs to be revived," Rangarajan said.