Bankers ask govt to consider cutting stake in PSBs to sub-51%

Government has been requested to consider lowering its stake in PSU banks to below 51 per cent by setting up Bank Investment Committee (BIC).
The government will look into this proposal, Financial Services Secretary Hasmukh Adhia said.
During the two-day bankers' retreat, heads of financial institutions have suggested the creation of BIC and transfer of the government's investment in banks to BIC.
"We have got suggestion from the top management of the banks. The government will look into this in detail," Financial Services Secretary Hasmukh Adhia told PTI.
Creation of BIC would over time enable the government to reduce ownership to below 51 per cent and help banks generate capital for growth.

Last month, the government decided to permit public sector banks to raise up to Rs 160,000 crore from capital markets by diluting government holding to 52 per cent in phases so as to meet Basel III capital adequacy norms.

Public sector banks alone require Rs 2.40 lakh crore by 2018 to meet global Basel III norms.
Adhia said a suggestion was also received for creation of 'Bank Bureau' to support creation of independent high performing boards to drive differentiated strategy, capital raising, M&A strategy and HR strategy.
"Establish Bank Board Bureau comprising professionals and eminent bankers to appoint and empower individual bank boards was also suggested by banks.

"In the short run, they have said that in the line with the Nayak Committee Report, the government should establish the bank bureau. It is an intermediate agency which can help in strengthening the boards of the banks by putting right kind of people in the bank boards," he said.
"What banks are saying is that in the long run you should also think of BIC. In two years they were suggesting. That is in the long run," he explained.
Elaborating on differentiated strategic focus, he said "It's a question of how to create niche for them, what would be best for them. Banks should look at niche areas for them. We don't want to impose any decision on them."

Focussing on specific niches would help build capabilities and optimise capital, he added.
Talking about other suggestions, the secretary said bankers have suggested elimination of market distortions like debt waivers, interest rate caps including on short term crop loan of Rs 3 lakh.
Besides, there was a suggestion on strengthening and simplification of processes for credit insurance for MSMEs and housing loans.
Bankers also pitched for enabling infrastructure for Digital Banking under 'Digital India campaign' of the government.
On the management of asset risk, bankers suggested strengthening and ensuring implementation of legal framework for wilful defaulters and Debt Recovery Tribunals.

Besides, recommendation of establishing rule-based underwriting for retail and SMEs, creating early warning signals and multi-channel collections architecture were also given.