The other major recommendations of the committee, headed by former RBI governor M Narasimham, and head of the Hyderabad-based Administrative Staff College of India, may include:
Setting up an asset construction fund (ARF) for the recovery of the banking sector's non-performing assets (NPAs).Some of the suggestions are similar to the onesmade by Narasimham in an earlier report submitted in 1991 to the then finance minister Manmohan Singh. The Narasimham committee, in its second avatar, was constituted by former finance minister P Chidambaram to set the agenda for the second stage of financial sector reforms. The deadline for submitting the report, which expired on March 30, was extended by a month as Narasimham had fallen ill.
According to sources, the panel wants government stake to be diluted to less than 50 per cent in order to make banks' decision-making more autonomous. "It could be even 26 per cent -- a prescription suggested by the Disinvestment Commission for some of the public-sector undertakings," sources said.
The panel also considered the idea of issuing a "golden share" under which the nominal government stake would be low -- one per cent -- while giving it a higher effective stake. "It did not find favour with the committee as, in the domestic context, the idea behind a reduction in government stake is to free bank employeesfrom being treated as "public servants." Instead, by directly reducing the government stake below 50 per cent, the banks will be free from the shackles of the central vigilance commission," sources said.
The Indian Banks' Association had, in its memo to the committee, called for 100 per cent divestment of the government stake. "Banks should be allowed to access 100 per cent capital from public, either from the domestic or international capital markets. This will increase the accountability of banks to shareholders..," it had said in its presentation to the panel.
The bankers' body also advocated M&As as a strategic move for consolidating the industry as smaller banks would not be able to survive competition. "Even the first Narasimham panel report had made recommendations in favour of mergers in the banking sector. It had also called for fine-tuning the role of the RBI, reducing the priority sector lending target and the creation of ARF. These were, however, not accepted. It needs to be seen whether theserecommendations find favour with the BJP-led government," a senior banker said. The committee is also believed to have pressed for a dilution in the role of the finance ministry -- leaving micro issues to bank managements and concentrating only on macro management. "It has a sharp focus on the autonomy of banks," a source said.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
