A Reserve Bank of India panel, headed by PJ Nayak, has recommended a host of measures to improve the governance structure of state-owned banks. It has suggested that the government should reduce its stake in the PSU banks to less than 50%, apart from recommending a minimum five-year tenure for chairman and managing director, and a minimum three-year tenure for executive directors of PSU banks.
The state-owned banks would need R5.8 lakh crore of tier I capital over the next four years to meet the Basel III norms.
And given that the government is in no position to contribute, it would be prudent to shed stake. The financial position of state-owned banks is fragile, which is partly masked by regulatory forbearance, and the capital of state-owned banks has eroded with the proportion of stressed assets rising rapidly?the PSU banks are losing their market-share to the private sector banks.
The Nayak panel has suggested allowing private equity firms a 40% controlling stake in distressed banks. This is a good idea since such banks can?t raise capital otherwise.