RBI proposes diluting govt stake in PSBs

The RBI said there is a case for reviewing the current Stop and Go licensing policy and consider adopting a continuous authorisation policy.

The Reserve Bank of India has proposed a continuous authorisation policy for new private banks and dilution of the governments stake below the 51 per cent in public sector banks to reduce the fiscal burden on account of recapitalisation of PSU banks.

The RBI said there is a case for reviewing the current Stop and Go licensing policy and consider adopting a continuous authorisation policy,as it keeps the competitive pressure on existing banks and also does not strain the banking system as block licensing may do.

However,it is important that entry norms should be stringent to encourage entry of only well-qualified entities in order to improve the quality of the banking system and promote competition, the RBI said in its discussion paper.

The government could also consider diluting its stake below 51 per cent in conjunction with certain protective rights to the government by amending the statutes governing the PSU banks, it said.

The RBI paper has also visualised a reoriented banking system with distinct four tiers of banking institutions. The first tier may consist of three or four large Indian banks with domestic and international presence along with branches of foreign banks in India. The second tier is likely to comprise several midsized banking institutions including niche banks with economy-wide presence. These are capable of offering a broad range of banking products and services to the domestic economy such as investment banking,wholesale banking and funding large infrastructure projects.

The third tier may encompass old private banks,Regional Rural Banks,and multi state Urban Cooperative Banks. The fourth tier may embrace small privately owned local banks and cooperative banks,which may specifically cater to small borrowers in the unorganised sector in unbanked areas,the RBI said.