The Telegraph
Wednesday , May 14 , 2014
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Tips to revamp PSU banks

Mumbai, May 13: An RBI-appointed committee today made some radical suggestions regarding the government’s control over nationalised banks.

The panel has proposed that the Centre should turn itself into an investor from its current role as a sovereign and form an investment company, which will hold stakes in banks.

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.

It said the government should distance itself from several governance functions and repeal the Bank Nationalisation Acts of the 1970 and 1980, together with the SBI Act, 1955 and the SBI (Subsidiary Banks) Act, 1959.

The committee proposed that the Centre’s holding in PSU banks be brought down to below 50 per cent. The move is expected to help the lenders avoid constraints imposed by external vigilance by agencies such as the Central Vigilance Commission and the Right to Information Act, 2005.

“The trade-off is worth grasping, as more competitive public sector banks will enhance financial returns to the government with no effective dilution of control,” it said.

According to the panel, if PSU banks continue to be governed in the same way, it will impede fiscal consolidation and impact the government’s solvency. Moreover, the banks will continue to reel under the challenges and difficulties that many of them are facing now.

The panel has also recommended the adoption of the model followed in countries such as Singapore where there are intermediate investment companies that hold equity in banks.

“This is the model India should aspire to, and vigilance is needed to ensure that such a company is not just a bureaucratic layer in an otherwise unchanged style of the government’s control of its banks,” the committee said.

It added that the government should empower and also make the board of the investment company autonomous.