Govt cutting stake in banks will lead to sectoral reforms: SBI Chief

State Bank of India chairperson Arundhati Bhattacharya said on Thursday that the cabinet decision to pare stake in state-owned banks will lead to a fresh round of banking reforms, and force banks to be more competitive.

"The news that the government has allowed PSBs to bring down govt stake to 52 per cent kicks of the next round of reforms because for the fort time the public sector banks are the a very clear signal that banks can pick up from the market," Bhattacharya said at the concluding day of the Delhi Economics Conclave.

She however added that apart from paring stake, the center also has to create a clear roadmap on how much the banks need to do to meet the Basel III norms.

"The writing on the wall is very clear that there has to come a time where they (the centre) have to think of differential voting rights and banks have to freedom to raise equity. It is time to lay out some kind of road map on how much the banks need to to do and how much support they would get."

Speaking on consolidating and merging of banks, Bhattacharya said: "It is extremely important for India to have 3-4 major banks. We should allow the banks to come together and talk among themselves." She cautioned, however, that such mergers should not be forced upon by the government, and that the banks should have the freedom to choose their own partners based on synergies.

Bhattacharya said that apart from long-term financing for infrastructure projects, the banks should also make short term investments in equity and bond markets. She also said that a lot of outdated securities and financial sector laws needed to be abolished or changed to reflect the current times.

Bhattacharya also spoke about improving the quality of banks' boards, and strengthening whistleblower policies

State Bank of India