Government Taps Private Sector for 2 PSU Bank Bosses in Industry Shake-Up

New Delhi: The government has brought in private sector executives to run two of its largest state-owned banks, the first such appointments in a broad reform plan to shake up the country's dominant but often inefficient public sector lenders.

Earlier this year, the government announced steps to overhaul its state banks, including the appointment of five new chief executives, with applications welcome from both public and private sector candidates.

The government hopes these changes can help the banks improve governance and boost earnings, important measures as they prepare to tap the markets for capital to strengthen their balance sheets.

The move also fits with Prime Minister Narendra Modi's preference for modernizing the management of state-run firms, rather than privatizing them.

India had previously always picked bosses for public sector banks from the state sector, which makes up more than 70 per cent of the country's banking assets but has lagged private rivals in profitability and has amassed bad loans at a faster pace.

India's banking sector, dominated by more than two-dozen state-run lenders, has been hobbled by its highest bad-loan ratio in a decade as slower economic growth hurt companies' ability to service debt.

The government on Friday named Rakesh Sharma, head of private sector lender Laxmi Vilas Bank, as chief executive of Canara Bank Ltd, and appointed P S Jayakumar, chief executive of real estate developer VBHC Value Homes Pvt Ltd, as head of Bank of Baroda.

It also named chief executives for Bank of India, IDBI Bank Ltd and Punjab National Bank from within the state sector.

In addition to senior jobs, Financial Services Secretary Hasmukh Adhia said that the government was also considering allowing public sector banks to hire mid-level executives from outside the state banking sector.

"We are very hopeful as the process unfolds that we will have other really, really good people coming in and being part of the public sector," Minister of State for Finance Jayant Sinha told CNBC TV18 network.

The bank reforms, expected to help to revive India's sluggish growth, also included more details of a so-called bank board bureau that will help state banks with strategies for growth and development.

They were announced following a parliamentary session in which Prime Minister Modi's reform agenda suffered a setback on important tax and land reforms.

The Finance Ministry on Friday also reiterated its plans to provide public sector banks with more capital. These include providing Rs 25,000 crore ($3.9 billion) each in the current and next fiscal year, while Rs 20,000 crore would be provided during 2017-18 and 2018-19.

Of Rs 25,000 crore allocated for this fiscal year, about Rs 20,000 crore will be allocated to 13 state lenders soon, a ministry statement said. The allocation of remaining Rs 5,000 crore would be decided in the March quarter.

The country's big six banks, State Bank of India (SBI), Bank of Baroda, Punjab National Bank, Bank of India, Canara Bank and IDBI, will get Rs 14,680 crore ($2.3 billion), the ministry said.

($1 = Rs 65.0126)