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Allow FDI in state-run banks, says HDFC chief Parekh

BS Banking Bureau

Housing Development Finance Corporation Chairman Deepak Parekh on Monday made a strong pitch for paring the government stake in the state run banks and opening up of the public sector banking industry for foreign direct investment.

Speaking at the Confederation of Indian Industry's banking summit Parekh said over two years ago the government announced its intention to reduce minimum ownership in state run banks to 33 per cent but the bill seeking the achieve this has been languishing in Parliament since December 2000.

The state run banks, according to Parekh, cannot raise capital even if they want to because of this constraint. For instance, if the economic recovery gathers momentum and the State Bank wants to raise capital to shore up its capital adequacy ratio it will not be able to do so as the Reserve Bank of India continues to hold at least 55 per cent stake in SBI.

"The FDI and FII limits, taken together, remain at 20 per cent for public sector banks. While the RBI recently allowed FDI and FII in private banks up to 49 per cent each, thus taking the maximum foreign investment in private banks to 98 per cent, it is unfortunate that restrictions on foreign investment in public sector banks were left untouched," he said.

According to him, it would have made greater sense to offer foreign investor takes in public sector banks also any not only in private ones.

Finance Minister Yashwant Sinha, however, chose to remain silent on this issue.

Parekh also took on the government for not settling the regulator-owner issue.

"In 1999 an RBI discussion paper had suggested that the RBI transfer its ownership of financing institutions to the government. The government's response in this regard has been lukewarm. Although the RBI has accepted the recommendation for transfer of ownership of its shares in SBI, NHB and Nabard to the central government, it has not been able to implement the transfer because the central government has yet to concur," he said.

Parekh also blamed the deteriorating borrower ethic and mandated lendings for the mounting NPAs of the banking sector. He urged the centre to extend the tenure of CEOs of public sector banks to enable them fulfil long-term goals.

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