ToR for banking panel likely by next month, says DFS secy M Nagaraju

On hiking FDI in PSBs, DFS Secy M Nagaraju says govt is considering raising the FDI cap to 49% from 20% to boost capital; inter-ministerial consultations are underway

Following the decision to allow 100 per cent foreign direct investment (FDI) in the insurance sector, companies from the US and Europe have shown keen interest in India, Department of Financial Services (DFS) Secretary M Nagaraju tells Harsh Kumar in an interview in New Delhi. He also says that increasing the limit of FDI in public-sector banks (PSBs), potentially up to 49 per cent, is under consideration. Edited excerpts:

 

The Budget announcement mentions a high-level committee for banking sector reforms. Could you share the expected timeline for its formation and report, and outline the specific reform areas it will examine? 

The Viksit Bharat 2047 goal requires huge credit from banks. Now, how do we ensure that credit is available is the big question for us.

  We have about 20 years now, and during these remaining years, we need to ensure the banking system is robust with adequate capital and proper regulatory mechanism. For that we need the bigger banks. And now, how do we get capital, how do we make the existing banks bigger, what are the changes required, what would be the road map? 

 

These are the issues of very significant implications.  

Therefore, the expert committee will be in a better position to chalk out a road map so that the country will be able to move towards Viksit Bharat 2047.

 

Will merger and FDI aspects be considered too? 

I think it all depends on the terms of reference (ToR), which the government will likely finalise by next month and then we will work out what should be the remit of this committee. 

 

We will try to finalise the ToR by consulting with stakeholders. Once we finalise the ToR, then the government will go for selecting members of the expert committee, who will include people from the financial sector. 

Will the panel be looking at restructuring of boards as well? 

No, the current method of appointment of board members and selection of managing directors (MDs) is fine.  We have an independent committee called FSIB (Financial Services Institutions Bureau), which does the interviews, recommends the candidates, and the government always accepts its recommendations.

 

Are we looking at revising FDI norms for PSBs? 

We are contemplating hiking FDI in PSBs to 49 per cent from the current 20 per cent to enhance their capital base. 

 

We are still considering, and an inter-ministerial consultation is on for raising the FDI cap. 

What for public sector insurance companies? 

The government has taken up insurance reforms in the last Parliament session. As far as the government’s own insurance companies are concerned, till last year, there was a decision to disinvest, but since the firms were loss-making, the government did not go ahead. The government decided to first recapitalise them, make them healthier, and then go for divestment. Although this year all the four companies have made profits, I think we need to allow them to make a good return and then perhaps the government will decide to go forward. But as of now, there is no decision on this. 

What is the kind of response from the global market to 100 per cent FDI in insurance?

 

There is a huge response, and there are plans by foreign insurance companies to own insurance companies in India, 100 per cent. They all see the Indian market as the most potent, because other markets are matured. Basically, US and European companies are approaching us. Some of them may already have some tie-ups, with minority stake. So, they want to know if they are allowed to go for 100 per cent. 

What next for Regional Rural Banks (RRBs) after the merger thing? 

We have now 28 RRBs — one state, one RRB. All the amalgamation of RRBs has been smooth, everybody praised the way it was done. And now, all the banks, except one, made profits. They are doing well, their operational efficiency has improved, the capital has improved, the lending has improved. Now, we have shortlisted three RRBs — Haryana Gramin Bank, Kerala Gramin Bank, and Tamil Nadu Grama Bank — for initial public offerings (IPO). These IPOs are likely to hit the market by the end of this year.