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State Bank of India Chairman Arundhati Bhattacharya on Thursday said the Cabinet’s decision to pare stake in state-owned banks will lead to a fresh round of banking reforms, and force these financial institutions to be more competitive.
Bhattacharya also said the government should allow public sector banks (PSBs) to look at different alternatives to raise funds to meet Basel-III norms, including issuing shares with differential voting rights.
“The news that the government has allowed PSBs to bring down govt stake to 52 per cent kicks off the next round of reforms because for the first time there is a very clear signal that banks can pick up funds from the market,” Bhattacharya said at the concluding day of the Delhi Economics Conclave.
“The big daddy back there is not going to be around to give them capital as and when they need and if they need to be competitive and want to grow, they definitely need to look at other places for more capital,” she said.
Finance Minister Arun Jaitley had said in his Budget speech that to be in line with Basel-III norms there is a requirement to infuse Rs 2.4 lakh-crore into the banking system as equity by 2018. “To meet this huge capital requirement, we need to raise additional resources to fulfil this obligation,” he had said.
Bhattacharya said apart from paring stake, the Centre also has to create a clear roadmap on how much the banks need to do to meet the Basel-III norms.
“The writing on the wall is very clear. There has to come a time where they have to think of differential voting rights and banks have the freedom to raise equity. It is time to lay out some kind of road map on how much the banks need to do and how much support they would get.”
Speaking on consolidating and merging of banks, Bhattacharya said: “It is extremely important for India to have three or four major banks. We should allow the banks to come together and talk among themselves.”
She cautioned, however, that such mergers should not be forced by the government, and that the banks should have the freedom to choose their own partners. “Mergers must necessarily be amongst consenting people and people who can see strength in each other rather than somebody being a rescuer of the bad banks.”
Bhattacharya said apart from long-term financing for infrastructure projects, banks should also make short-term investments in equity and bond markets. She also said that a lot of outdated securities and financial sector laws needed to be abolished or changed to reflect the current times.
She also spoke about improving the quality of banks’ boards and strengthening whistle-blower policies.
Bhattacharya also said the government should allow public sector banks (PSBs) to look at different alternatives to raise funds to meet Basel-III norms, including issuing shares with differential voting rights.
“The news that the government has allowed PSBs to bring down govt stake to 52 per cent kicks off the next round of reforms because for the first time there is a very clear signal that banks can pick up funds from the market,” Bhattacharya said at the concluding day of the Delhi Economics Conclave.
“The big daddy back there is not going to be around to give them capital as and when they need and if they need to be competitive and want to grow, they definitely need to look at other places for more capital,” she said.
Finance Minister Arun Jaitley had said in his Budget speech that to be in line with Basel-III norms there is a requirement to infuse Rs 2.4 lakh-crore into the banking system as equity by 2018. “To meet this huge capital requirement, we need to raise additional resources to fulfil this obligation,” he had said.
Bhattacharya said apart from paring stake, the Centre also has to create a clear roadmap on how much the banks need to do to meet the Basel-III norms.
“The writing on the wall is very clear. There has to come a time where they have to think of differential voting rights and banks have the freedom to raise equity. It is time to lay out some kind of road map on how much the banks need to do and how much support they would get.”
Speaking on consolidating and merging of banks, Bhattacharya said: “It is extremely important for India to have three or four major banks. We should allow the banks to come together and talk among themselves.”
She cautioned, however, that such mergers should not be forced by the government, and that the banks should have the freedom to choose their own partners. “Mergers must necessarily be amongst consenting people and people who can see strength in each other rather than somebody being a rescuer of the bad banks.”
Bhattacharya said apart from long-term financing for infrastructure projects, banks should also make short-term investments in equity and bond markets. She also said that a lot of outdated securities and financial sector laws needed to be abolished or changed to reflect the current times.
She also spoke about improving the quality of banks’ boards and strengthening whistle-blower policies.
