Following Wednesday's Cabinet decision to stop endlessly funding PSBs, SBI's Arundhati Bhattacharya spoke about this opportunity for wider reform
SBI chairman Arundhati Bhattacharya said that the government's decision to stop funding public sector banks (PSBs) will lead to competition and reforms in the sector which has been dogged by long-standing NPAs.
She proposed that banks could look to raise funds by issuing shares with differential voting rights, so that banks could raise capital enough to meet Basel-III capital adequacy norms.
“The writing on the wall is very clear...they (PSBs) have to think of differential voting rights. It is time to lay out some kind of roadmap on how much the banks need to do and how much support it would get,” she said.
“The big daddy back there is not going to be around to give them capital as and when they need. If they need to be competitive and want to grow, then they definitely need to look at other places for more capital,” she added.
With the government deciding that it will start diluting its stake to bring it down to 52%, the PSBs will be able to raise around Rs1.60 lakh crore. "The news that the government has allowed PSBs to bring down government stake to 52% kicks off the next round of reforms... because for the first time clear signal has been given (to PSBs) to source capital from the market.”
The SBI chairman also stressed that the Indian banking space needs consolidation and that this should ideally result in 3 to 4 major banks. "It is extremely important for India to have 3-4 major banks. ... We should allow the banks to come together and talk among themselves. In the past also we have seen government has forced some mergers...it is very important for the banks to determine who should be their correct partners," she said.
The Basel-III norms are slated to come into effect on 31 March 2019. Indian banks would need to meet capital adequacy norms to improve risk management and governance by the deadline.
Inside story of the National Stock Exchange’s amazing success, leading to hubris, regulatory capture and algo scam
Fiercely independent and pro-consumer information on personal finance.
1-year online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
30-day online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
Complete access to Moneylife archives since inception ( till the date of your subscription )
