‘State-run lenders should be free from political interference’

Amid rising level of non-performing assets (NPAs) at public sector banks, finance minister Arun Jaitley on Monday said the government may consider reducing its stake in state-run lenders to 52%, which will give them more freedom to operate.

Amid rising level of non-performing assets (NPAs) at public sector banks, finance minister Arun Jaitley on Monday said the government may consider reducing its stake in state-run lenders to 52%, which will give them more freedom to operate.

From left: ICICI Bank CEO & MD Chanda Kochhar, finance minister Arun Jaitley and SBI chairman Arundhati Bhattacharya at a banking conference in Mumbai on Monday(PTI Photo)

“We are willing to look at all other changes including bringing down government equity to 52% (in state-run banks), and giving additional financial strength to banking institutions,” he said.

Speaking at a banking conference, the finance minister reiterated what he had suggested last week at an international event, when he said that the Centre was looking at adopting the Axis Bank structure. Axis Bank is classified as a private bank, in which government entities hold 29.19%.

The government’s stake in most banks is over 60% — Central Bank of India (88.63%), Indian Bank (81.51%), Punjab & Sind Bank (81.42%), Bank of Maharashtra (85.21%), IDBI Bank Ltd (76.5%), Canara Bank (69%) and Bank of India (66.75%). It has full ownership of the recently launched Bhartiya Mahila Bank.

In December, the Cabinet allowed public sector banks to raise additional capital required under the Basel-III norms by diluting government holdings up to 52% in a phased manner. While permitting banks to raise capital from the market, the Centre said banks would be advised to preserve the government holding at a minimum 52% and increase public shareholding in a phased manner through the issue of shares, mainly to retail investors.

Banking stocks rallied last week after Jaitley hinted that IDBI Bank could likely see a more open ownership structure. IDBI Bank shares rallied 28% in the last four trading sessions. On Monday, the stock surged 7.1% on the BSE.

Jaitley also said state-run lenders should be kept away from any political interference. “Public sector banks have to be given a lot of independence and an arms-length distance from political decision-making,” he said.

Jaitley also said the government is getting ready to unveil a draft for a Bankruptcy Code by the end of this month or early October, as it would help banks to recover much of the bad debt.

The Reserve Bank of India had said in its recent Financial Stability Report that while leverage has increased, “the ability to repay debt and debt servicing ability of corporates has declined. Besides its adverse impact on banks’ balance sheets, high leverage may hinder the transmission of monetary policy impulses.”

While the RBI has so far cut rates by 0.75 percentage points in 2015, banks have not yet passed on more than 0.30 percentage point cut to customers.