Shares of 24 state-run banks rose by 0.13% to 3.96% at 11:55 IST on BSE after a committee appointed by Reserve Bank of India proposed that the Indian government should cut its stakes in state banks to below 50%.
Canara Bank (up 3.96%), Central Bank of India (up 3.16%), Indian Overseas Bank (up 2.99%), Allahabad Bank (up 2.58%), Corporation Bank (up 2.31%), Punjab National Bank (up 2.24%), Bank of India (up 2.18%), Andhra Bank (up 2.12%), Bank of Baroda (up 2.10%), Union Bank of India (up 2.01%), Indian Bank (up 1.65%), IDBI Bank (up 1.63%), Dena Bank (up 1.49%), Oriental Bank (up 1.43%), State Bank Of Bikaner and Jaipur (up 1.24%), UCO Bank (up 1.21%), Vijaya Bank (up 1.2%), United Bank of India (up 1%), Jammu and Kashmir Bank (up 0.89%), Punjab & Sind Bank (up 0.64%), State Bank of India (up 0.63%), Syndicate Bank (up 0.45%), State Bank of Travancore (up 0.26%) and Bank of Maharashtra (up 0.13%), edged higher.
The S&P BSE Sensex was down 39.89 points, or 0.17% at 23,831.34.
A panel appointed by the Reserve Bank of India (RBI), on Tuesday, 13 May 2014, proposed that the government should cut its stakes in state banks to below 50% and establish fully empowered bank boards.
The panel has also recommended that government investment in PSU banks be transferred to a bank investment company.
The committee, headed by former chairman and chief executive of Axis Bank P.J. Nayak, further suggested that the PSU banks should be brought under the ambit of the companies act.
In January 2014, RBI governor Raghuram Rajan had constituted an expert committee to review governance of boards of banks in India under the chairmanship of P J Nayak. RBI has invited comments on the report. After taking into account views from all constituents, the central bank will make its recommendations to the government.
According to the report, the financial position of PSU banks is fragile and is masked by regulatory forbearance which only delays recognition of this fragility. It is desirable for the government to level the playing field for public sector banks in relation to their private sector competitors. Reducing the proposed Bank Investment Company's investment in a bank to less than 50% will free the bank from external vigilance emanating from the Central Vigilance Commission, from the Right to Information Act, and from government constraints on employee compensation, the report said. The panel also wants the finance ministry to stop providing regulatory directions to PSU banks and make RBI the sole regulator.
If the government stake in these banks were to reduce to less than 50%, together with certain other executive measures taken, all these external constraints would disappear. This would be a beneficial tradeoff for the government because it would continue to be the dominant shareholder and, without its control in the banks diminishing, it would create the conditions for banks to compete more successfully. It is a fundamental irony that presently the government disadvantages the very banks it has invested in, the report said.
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