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The government will consider diluting its stake in public sector banks with an international presence to below 51 per cent. The move, aimed at helping these banks to improve their capital adequacy ratio through public flotations, would benefit State Bank of India, Bank of Baroda and Bank of India.

Reacting to presentations by bank chiefs at a meeting of the Indian Banks' Association yesterday, finance secretary Vijay Kelkar said the point raised about dilution would be considered by the government.

Bankers pointed out that there was a need to increase capital in absolute terms due to the increase in risk assets and the rise in the minimum adequacy ratio to 10 per cent. Therefore, they would eventually have to tap the capital market. However, the requirement to keep the government's stake at 51 per cent prevented them from floating large issues, unless the government contributed its share.

The finance secretary said capital adequacy was a constant problem and asked for solutions. In this connection, it was suggested that the government should dilute its stake in profit-making banks to below 51 per cent, but weak banks should continue to get government funding.

The bank chiefs also asked for the 20 per cent limit on foreign equity to be increased.