RBI asks PM Modi to trim govt stake in state-owned banks to 26%: Report

Chief executives of public sector lenders must get longer tenures: Central bank reportedly tells PM in meeting with financial regulators.

The government should reduce its stake in state-owned banks to 26 per cent and give their leaders longer tenures for professional management, the Reserve Bank of India (RBI) has told the Prime Minister, the Economic Times reported on Friday.

The RBI gave Modi a presentation Thursday when he met with the heads of financial regulators to discuss measures to revive the economy hit by the coronavirus pandemic. It suggested that the managing directors and chief executive officers of state-run banks should have a term of three to years and their salaries should match the private sector, Economic Times reported. The government’s holding in state-run owned banks exceeds 50 per cent.

News agency PTI, while quoting anonymous sources, said the meeting discussed various steps that regulators, especially the RBI, can take to revive economic growth.

RBI governor Shaktikanta Das, Sebi chairman Ajay Tyagi, Irdai chairman S C Khuntia and PFRDA chairman Supratim Bandyopadhyay attended the three-hour long meeting. Finance Minister Nirmala Sitharaman, Road Transport Minister Nitin Gadkari, and Commerce and Industry Minister Piyush Goyal were there, too, said PTI.

The challenges before the regulators in the post-coronavirus world also came up for discussion, sources told PTI. The meeting comes at a time when the government is considering another round of fiscal stimulus to boost demand in the economy.

India’s economy is expected to contract by 4.5 per cent during the current fiscal, according to the latest projection by the International Monetary Fund (IMF).

The RBI, since February, has taken various measures, including liquidity infusion and moderation of interest rate to record low in its bid to maintain financial stability and support growth. Nearly 40 per cent of the government's Rs 20.97 lakh crore economic package comprised of several liquidity measures undertaken by the RBI.

Earlier this week, Modi met with CEOs of large public and private sector banks and heads of non-banking financial companies (NBFCs). "Each bank needs to introspect and take a relook at its practices to ensure stable credit growth. Banks should not treat all proposals with the same yardstick and need to distinguish and identify bankable proposals and to ensure that these don't suffer in the name of past NPAs," he had said.