Uday Kotak moots new legislation to reform public sector banking

New Delhi: After the abrogation of Article 370, banker Uday Kotak Monday called upon the government to bring in more legislative changes to lower state ownership in public sector banks below 50% and also re-introduction of the FRDI Bill. He proposed changes to public sector banking, including reducing the number of state-run lenders to five, getting government stakes down in some of them to under-50%, or merging a few of them or even public private partnerships in banking. Under the public private partnership model, the state ownership has to be capped at 26 or 33%, with the private sector partner owning the rest, he said, adding this will create huge value for the government.

"We must think about a courageous move of looking at state-owned banks. It would be differentiated, bold and would be a big step in transformation of finance," he said, delivering the 25th Lalit Doshi memorial lecture this evening. The banker also suggested re-introduction of the controversial Financial Resolution and Deposit Insurance (FRDI) Bill to tackle the woes plaguing the financial sector.

"Time has come for a strong FRDI Bill along with a strong resolution mechanism for handling stress and mortality in the financial sector," he said, speaking of the Bill which was withdrawn because of a 'bail-in' clause. Kotak also pitched for a stronger Financial Sector Development Council for inter-regulatory issues, proposing that the finance minister should be placed as the arbitrary.

"Time has come for a very strong FSDC under the finance minister that ensures that issues of regulation between regulators are handled in a seamless manner," he said. Kotak, who has been tasked to manage IL&FS, said what we are witnessing at present in the financial sector are the "after-effects of serious indigestion which India". "It was very easy to get an accounting opinion, it was easier to get a rating...there was mad competition among rating agencies," he said in comments, that come weeks after reports of how rating agency professionals were compromised and the heads of two of them were asked to leave the organizations--Icra and Care Ratings--last month.

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