The Congress Party's brainstorming session in Pachmarhi is to discuss a proposal to bring down the government's equity in all nationalised banks to below 51 per cent as recommended by the Narasimham Committee appointed by the United Front government. According to the background paper on economy which would give talking points for brainstorming on economic issues, reducing the government or Reserve Bank stake in banks to a minority would send a "major and clear signal about the restoration to banks and financial institutions of full autonomy in their functioning".
In a long half page paragraph over Narasimham panel report, the paper says that "the recommendations go to the very heart of our banking industry and must be debated dispassionately with one over-riding concern_-how to make our banks more frodessional ans strong, how to insulate them from political influence and yet given them a social orientation".
The background paper is "designed to provoke reflection and discussion, not reiterate settled conclusions", the paper declares adding that the views expressed in it were not necessarily those of the Congress Party.
The background paper for economy has been prepared by former Finance Minister Dr Manmohan Singh and Jiram Ramesh, the secretary of the economic cell of the party.
On the need to mobilise long-term capital for infrastructure through opening up of the insurance sector, the background paper on economy talks of imposing the same social obligations that are imposed on LIC and GIC to be imposed on all new entrants_a condition which foreign insurance firms eager to enter the Indian market have agreed to. The Congress election manifesto of 1998 has already committed the party to opening up of the insurance business to the private sector with a minority holding for foreign insurance firms.
Expressing concern over the prevailing ratio of non-performing assets (NPA)to advances, the background paper stresses on the need to bring about a faster reduction in the NPAs level to the international level of three per cent by the year 2002.
The present level of the NPA is 10 per cent which comes to about Rs 40,000 crore. The paper wants the party to mull over major legislative changes to make the debt recovery tribubals more effective. The government has already spent Rs 20,000 crore over recapitalising the banking system but "further recapitalisation is neither desirable nor feasible".
In an argument to support the lowering of government equity in nationalised banks, the paper has quoted from the Narasimham Committee report which says that even with significant holding over 33 per cent, the government would be in a position to fulfil its socio-economic objectives.
It further says that the RBI could not be expected to function as both the owner and regulator of the financial sector, as the case is today.
