Hinting at major banking sector reforms in the offing, Finance Minister Arun Jaitley on Sunday said the country is not at a stage where the government can completely exit its holding in the 27 public sector banks.
“There are a series of banking reforms which I am likely to announce…in the days to come, you may find something on that,” said Jaitley, who will present the Union Budget on February 29.
Speaking at the CNN Asia Business Forum 2016 during the Make in India Week in Mumbai, Jaitley said, “I don’t think India has reached a state where the state can pull out of banking altogether.”
He further said that in order to professionalise the operations of these state-run banks, which control over 70 per cent of the industry, the government has already committed to bring down its holding to up to 51 per cent.
Public-sector banks are required because they perform a major role in financial inclusion through their geographical reach, Jaitley said.
The government had last year announced the ‘Indradhanush’ programme to revamp the state-run banks. It has already put in place steps to professionalise their management.
The government is committed to zero interference, and keeping an arms-length from these banks and letting the institutions run professionally, Jaitley said, adding “we have erred in the past on this”.
The comments from the Finance Minister come days after the state-run lenders posted poor set of earnings for the December quarter.
Bank of Baroda and IDBI Bank posted the highest losses in Indian banking history, while others like Indian Overseas Bank and Dena Bank were also in the red.
Those who managed to be in the black witnessed a huge spurt in bad assets and provisioning, attributed largely to an asset quality review undertaken by the RBI.
On the critical question of reforms, and whether the steps taken by the government have been a “quantum shift”, Jaitley said the work done by the NDA government is “more than incremental” if we look at the sum total.
On the passage of the GST in the Upper House, Jaitley said he hopes to “negotiate through” in the coming days. The Finance Minister reiterated that the government is committed to provide a predictable and stable tax regime, saying demands raised in the past got us a “bad reputation”.
The government has started on a path to make the regime globally competitive and the move to get the corporate tax gradually to 25 per cent is a part of the same, he said.
Jaitley said the economy is becoming increasingly market-oriented, but the government has been unable to carry its divestment programme due to choppy market conditions.
He said the windfall from the declining oil prices is being invested in creating infrastructure, and added that there is a need to focus on investments in rural roads, electrification and irrigation which will push rural demand that has been hurt by two successive droughts.
There is a good opportunity in the hospitality sector for the country, he said, adding the states need to look into the aspect of higher taxes which hurt tourism volumes.
The day-long CNN forum is being held as part of the ‘Make in India’ Week which was inaugurated by Prime Minister Narendra Modi on Saturday.