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Shed stakes in banks: Plan panel

Around half a dozen public sector banks are facing difficulty in raising fresh resources to bolster their net worth due to the high government holding, reports Arun Kumar.

india Updated: Apr 02, 2008 20:59 IST
Arun Kumar

A high-powered study by the Planning Commission has suggested the government bring its holding in public sector banks to below 51 per cent and also enhance foreign ownership in the insurance industry from the current 26 per cent.

The ability of the state-run banks to raise capital for growth would be severely constrained unless the government’s holdings were allowed to fall below 51 per cent, the Planning Commission study on the services sector said.

"It would be appropriate to consider the evolution of a path towards reduction of government ownership in a manner that minimises dislocation among various stakeholders," the report said.

The working group, set up to suggest measures to improve competitiveness of the services sector, which accounts for over 50 per cent of the gross domestic product, suggested that India consider allowing foreign investors to own a larger share of insurance companies and usher in consolidation in state-owned banks.

Around half a dozen public sector banks are facing difficulty in raising fresh resources to bolster their net worth due to the high government holding.

The group added that there had been limited consolidation in the banking system and there was a need to push the concept among mid-sized state-run banks, which are duplicating investments in technology and other infrastructure.