The government is thinking of asking public sector banks (PSBs) to each form a separate holding company to hold its stake as well as the banks' stakes in their various subsidiaries, as the first step towards a more fundamental reform that could ultimately lead to the nationalised banking sector being freed from majority state ownership. A senior government official told ET that separate holding companies for each bank will be a precursor to the establishment of a Bank Investment Committee, which will serve as a super holding company of sorts that will exercise control over the various individual holding companies and, in the long term, facilitate the reduction of government stake in these banks to less than 51%.
Bank chiefs have been seeking for some time now a lowering of the present government ownership floor in the state-run banking system, most recently at the recently concluded 'Gyan Sangam' bankers retreat held in Pune at the weekend. Bankers and other experts argue that the requirement of 51% minimum state ownership in PSBs, especially at a time government finances were already stretched, and therefore, restricted its ability to regularly pump in capital, impaired banks' ability to grow their asset book. Recommendations for reforming the sector include the creation of a holding company that will own the government's stakes in all banks and which can raise money.