PSU banks may issue equity with differential voting rights, suggests SBI chief

State Bank of India (SBI) Chairperson Arundhati Bhattacharya on Thursday said public sector banks (PSBs) could look at issuing shares with differential voting rights to raise funds to meet the Basel-III capital adequacy norms as the government has indicated that it won't continue to fund PSBs.

"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 road map on how much the banks need to do and how much support it would get," Bhattacharya said while talking to reporters on the sidelines of a conference.

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 Basel III norms.

Pitching for consolidation in the banking sector, the SBI chief said that it was important to have three-four major banks.

"We should allow the banks to come together and talk among themselves. In the past also we have seen government has forced some mergers... It is very important for the banks to determine who should be their correct partners," she added.

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

The SBI chief further said the government has shown its intent to continue with reforms in the banking sector by deciding to bring down its stake in PSU lenders to 52 per cent.

"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," she added.

Out of 27 PSBs, the government controls 22 through majority holding. In the remaining 5 banks, state-owned lender SBI holds majority stake.

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

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

Bhattacharya said bankers are paid poorly in the country as compared to their counterparts elsewhere in the world.

"Let me start with income of banking professionals in India. Here, 70 per cent of the banks are in public sector and they are paid very poorly compared to market," the SBI chairperson said.

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

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, the chief added.

"So, I believe, along with the step the government took yesterday (Dec 10), 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.

Elaborating on the theme of consolidation in the banking industry, 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 like the US, Bhattacharya said, there are universal banks and community banks.

May be with similar thoughts in mind the Reserve Bank of India (RBI) has just about brought in the new small bank license, she said, adding 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.

Pitching for mergers and acquisitions, she said it would be better if some kind of coming together happens and added, probably the conversation needed to start among everybody so that the consenting people could come together and do something about it.

Regarding small banks, the SBI chief said, they should offer something niche otherwise it would become difficult for them to adopt technology and compete.