Last week, an RBI panel headed by former Axis Bank chairman PJ Nayak had suggested that the government cut its holding in public sector banks to under 50%.
It said state-owned banks suffer due to externally imposed constraints, such as dual regulation by the RBI and the finance ministry, and external vigilance by agencies, such as the CVC and CAG, among others.
The Nayak report said if the government's stake in these banks were to reduce to less than 50%, together with certain other executive measures, these external constraints would disappear.
The panel said the government should distance itself from several governance functions and all banks should be incorporated under the Companies Act. A bank investment company should be constituted and the government's holding in all banks be transferred to this entity.
These measures, if implemented, would be credit-positive for public sector banks because they would address a key credit weakness, Moody's said in a report.