"As regards the reduction in fiscal burden on account of recapitalisation of the public sector banks (PSBs), Government may consider options from menu of choices available such as issue of non-voting equity shares or differential voting equity shares, adopting FHC structure or diluting stake in PSBs," the paper said.
"Going forward, there is a better pay-off in enabling PSBs to improve their performance while promoting private sector banks," the discussion paper titled ‘Banking Structure in India - The Way Forward’ said.
It further said, "Government could also consider diluting its stake below 51 percent in conjunction with certain protective rights to the Government by amending the statutes governing the PSBs."
Another alternative would be to move to a Financial Holding Company (FHC) structure, it added.
The government has been pumping money in the public sector banks for the last few years to enhance their capital base.
In the current fiscal, the government has announced that the PSBs will get Rs 14,000 crore additional capital.
The government infused Rs 12,517 crore into 13 PSBs in 2012-13. The government had infused about Rs 20,117 crore in PSBs during 2010-11, and Rs 12,000 crore in 2011-12.

On consolidation in the banking sector, the paper said, it has assumed significance considering the need for a few Indian banks to cater to global needs of the economy by becoming global players.
Consolidation in the banking sector may pave the way for stronger financial institutions with the capacity to meet corporate and infrastructure funding needs, it said.
Taking into account the pros and cons of consolidation, it has to be borne in mind that while consolidation of commercial banks with established synergies and on the basis of voluntary initiatives is welcome, it cannot be imposed on banks, it added.
Nevertheless, a measured approach is to be made both on consolidation and global presence even if attaining global size is not imminent, it noted.
On the issue of small banks versus large banks, the paper said small local banks play an important role in the supply of credit to small enterprises and agriculture and banking services in unbanked and under-banked regions in the country.
"While permitting large number of small banks, however, the issues relating to their size, numbers, capital requirements, exposure norms, regulatory prescriptions, corporate governance and resolution need to be suitably addressed," it said.


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