Government should cut stake in state banks to below 50 per cent: RBI

Mumbai: The government should cut its stakes in state banks to below 50 per cent and establish fully empowered bank boards, a committee appointed by the Reserve Bank of India (RBI) proposed on Tuesday.

India's banking sector is dominated by state-controlled lenders, which have piled up bad debts during the country's recent economic downturn. The government has long been reluctant to let its holdings in state lenders fall below 51 per cent.

"From a purely financial standpoint this is a favourable trade-off for the government, as a more competitive set of banks can be expected to improve the financial returns to the government," stated the committee chaired by former Axis Bank Chief Executive P. J. Nayak.