RBI-MoF report pitches for lower govt stake in banks

Written by fe Bureau | New Delhi, Mumbai | Updated: Mar 31 2009, 06:48am hrs
The first ever annual risk assessment of the Indian financial sector carried out by the finance ministry and RBI has pointed out that the public sector-dominated banking industry will find it difficult to finance the expanding credit needs of industry while maintaining government control.

The report has, therefore, suggested the government should relax its holdings in public sector banks or merge banks where government shareholding has dipped to 51% of total equity with banks in which its stake is far higher.

The committee of financial sector assessment, headed by RBI deputy governor Rakesh Mohan, has said foreign banks in India should sell at least 26 % of their stake in their local subsidiaries and also meet government targets for lending. This will allow them to be treated on a par with Indian banks and get equal rights to open branches. This means foreign banks will have to list their subsidiaries on Indian stock exchanges, capping their ownership at 74 %.

But reflecting the division of opinion between RBI and the finance ministry, while the committee has suggested setting up a separate debt management office to handle the governments massive debt programme, Rakesh Mohan has put on record his objectionthe time is not ripe for the complete separation of debt management from the Reserve Bank at the current juncture.

But the six-volume report released on Monday came in for praise for its candidness. Canara Banks former CMD MBN Rao, who chaired one of the four CFSA panels said, In my 38 years of banking career, I havent seen such a report. It has independent panel reports, peer reviews and dissent notes. It has been a very extraordinary effort of the government and RBI. This report is the most authentic assessment of the Indian financial sector.

The recommendations of the committee will be closely examined by the new government.