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January 16, 2002
1615 IST
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Debate over converting PSU banks into companies

Reserve Bank of India Deputy Governor Y V Reddy on Wednesday invited discussions on whether all public sector banks could be converted into companies to accord flexibility for changes in ownership, mergers and acquisitions.

Speaking about technical vision of the apex bank while making valedictory address at the 23rd Bank Economists' Conference in Kolkata, Reddy said conversion of all PSU banks into companies would also accord corporate governance and motivation for workforce to compete effectively.

He said to professionalise the ownership functions and ensure that portfolio is shuttled around to optimise public interest, a holding company of public sector banks can be formed to which all shares held by the government and RBI are transferred.

Reddy said the mandate for holding company could be three-fold -- fiscal neutrality, protecting the interests of those banks that are serving special public purpose by infusing resources and enhancing bank-wise, genuine board management and worker motivation to cope with paradigm shifts occuring in banking industry.

"To ensure genuine corporate governance and protect a private shareholder, even if the government owns a majority, a government company should be one where 100 per cent ownership vests with government directly and not 51 per cent or above," he said.

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