PSBs can issue equity with differential voting rights, says SBI chief Arundhati Bhattacharya

‘It is better to merge good banks with good banks’

December 12, 2014 12:25 am | Updated June 07, 2016 07:37 am IST - NEW DELHI:

State Bank of India Chairman Arundhati Bhattacharya. Photo: Paul Noronha

State Bank of India Chairman Arundhati Bhattacharya. Photo: Paul Noronha

With the government indicating that it would not continue to fund public sector banks (PSBs), State Bank of India (SBI) Chairman Arundhati Bhattacharya on Thursday said they could look at issuing shares with differential voting rights to raise funds to meet the Basel-III capital adequacy norms.

“The writing on the wall is very clear...they (PSBs) have to think of differential voting rights. It is time to lay out some kind of roadmap on how much the banks need to do and how much support it would get,” she said while talking to reporters on the sidelines of a conference here.

The government on Wednesday allowed PSBs to raise up to Rs.1.60 lakh crore from markets by diluting government holding to 52 per cent in phases so as to meet the Basel III norms.

Pitching for consolidation in the banking sector, Ms. Bhattacharya said it was important to have 3-4 major banks.

According to Ms. Bhattacharya, “it is better to merge good banks with good banks.”

“The news that the government has allowed PSBs to bring down the government stake to 52 per cent kicks off the next round of reforms... because for the first time, clear signal has been given (to PSBs) to source capital from the market.

“The big daddy back there is not going to be around to give them capital as and when they need. If they need to be competitive and want to grow, then they definitely need to look at other places for more capital,” Ms. Bhattacharya added.

Basel III norms The Basel III norms, which will come into effect from March 31, 2019, were put in place following the 2007-08 financial crisis triggered by the fall of Lehman Brothers.

The norms are aimed at improving risk management and governance while raising the banking sector’s ability to absorb financial and economic stress.

As per Basel-III norms, the minimum capital level for Tier-1 has to be 7 per cent.

Ms. Bhattacharya said bankers were paid poorly in India as compared to their counterparts elsewhere in the world.

Ms. Bhattacharya also suggested that the government should provide some kind of a roadmap for public sector banks on how much capital support they could expect from shareholders and how much they had to raise from the market.

“If some kind of a roadmap could be led out for the banks to understand what they need to do on their own and how much support would be available... that would enable the banks to properly lay out their own plans as to how they do things,” she said.

It would make the banks come up to the efficiency level that the markets demand and they would start working towards it with much greater fervour, she added. “So, I believe, along with the step the government took on Wednesday, they also need to now lay out the roadmap for the public sector banks in order to enable them to lay out their own plan and proceed accordingly,” she said.

Ms. Bhattacharya said smaller banks would find it extremely difficult to innovate and adopt latest technology, while remaining profitable at the same time.

Even in countries such as the U.S., she said, there were universal banks and community banks.

“May be with similar thoughts in mind, the RBI has just about brought in the new small bank licence,” Ms. Bhattacharya said.

She added that it would be better if “good banks (merge) with good banks and may be bad with bad so that they can come together and get some strength... mergers must be among...people who can see strength in each other rather than somebody rescuing a bad bank.”

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