The Reserve Bank of India (RBI), the country’s central bank, has advised the government to cut their stake in the public sector (PSU) banks to 26%, the Economic Times reported.
In a presentation to Prime Minister (PM) Narendra Modi, the watchdog suggested this move and also proposed to offer longer tenure to the state-owned banks’ bosses.
The regulator recommended that state-owned banks’ MDs and CEOs should have a tenure of three or five years and salaries should be equivalent to that of the private sector banks.
RBI boss Shaktikanta Das, Securities & Exchange Board of India (SEBI) boss Ajay Tyagi and Insurance Regulatory & Development Authority of India (IRDA) boss SC Khuntia discussed the matter with the PM.
Currently, the government owns more than 50% stake in state-owned banks, the report added.
The government said that it will hold a minimum 52% stake in the PSU banks.
A person familiar with the matter told ET: “Bringing down the government’s stake in public sector banks to allow them to be run more professionally was one of the things discussed.”
He added that the “center should retain major control over the state-run banks” and added that new legislation might be needed to reduce the government stake to 26%.
In light of the Covid-19 pandemic, PM Modi recently arranged a meeting with top bankers to discuss measures for reviving the country’s economy.
Modi asked the banks to fund profitable proposals and promised to fully back the executives, regardless of the bad loans in the past.
Due to Covid-19 disruptions, the government spiked the borrowing target for the current fiscal to INR12trn ($160bn) from INR7.6trn ($101bn) in the budget.