Call for paring govt stake in public sector banks, greater board autonomy

Granting greater autonomy to the boards of public-sector banks (PSBs), diluting the government’s stake in them, and leaving their regulations to the Reserve Bank of India, were among the key new ideas discussed by bankers and experts at a brainstorming session steered by the finance ministry on Friday to improve state-owned lenders’ efficiency and governance. 

“Experts and bankers advocated for further dilution of the government’s stake and for more powers to be given to the boards of the banks which would lead to the smoothen function of the PSBs,” a source said about parleys that took place on the first day of a two-day PSB Manthan summit being held in the capital. This is the first such summit being hosted by the Department of Financial Services (DFS) in the Ministry of Finance, since April 2022. 

“Some bankers and experts also suggested this is the right moment to consider bold reforms which may require further amendments in the Banking Companies (Acquisition and Transfer of Undertakings) Act, and the State Bank of India Act. Key areas for reform include longer tenures for leadership, better compensation structures, a clear separation between ownership and management, and greater autonomy for boards,” the source noted.

 

A discussion also took place on the need for the regulatory framework to evolve in order stay relevant and compatible with a changing landscape as non-bank players like fintechs, technology companies, funds, and insurers, entering the financial services space.

 

“The way forward is not heavier regulation, but smarter regulation. Boards should be empowered to govern independently, with tighter supervision rather than day-to-day regulatory intrusion. Regulation must be clear, simple, and focused, not excessively layered or complex,” added the source.

 

The discussion also touched upon the objective of ensuring that at least two public sector banks feature among the world’s top 20 banks. “With this goal in mind, deliberations were held on how customer experience and overall bank performance could be enhanced through innovative approaches,” the source added.

 

Banks also discussed the need to focus credit flows towards agriculture and MSMEs. “For India’s demographic dividend to truly pay off, PSBs must direct more capital towards job-rich sectors. That means supporting MSMEs, the backbone of local economies, by financing them with working capital and other needs,” said the source, who was part of the deliberations.

 

Apart from top DFS officials and bankers, the summit was also attended by RBI Deputy Governor Swaminathan J. Chief Economic Adviser V Anantha Nageswaran also addressed the bankers.  

 

“Out of a total of seven sessions planned through the two-day summit, five were concluded today covering topics such as technology, governance, and customer grievances, among others,” said a senior government official.