India taps private sector for two state bank bosses in industry shake-up

India 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 government-backed 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 to 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 modernising the management of state-run firms, rather than privatising them, a policy he honed in his home state Gujarat where he made failing state industries profitable.

India had previously always picked bosses for public sector banks from the state sector, which makes up more than 70 percent 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 bank 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," junior finance minister 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 250 billion rupees ($3.9 billion) each in the current and next fiscal year, while 200 billion rupees would be provided during 2017/18 and 2018/19.

Of 250 billion rupees allocated for this fiscal year, about 200 billion rupees will be allocated to 13 state lenders soon, a ministry statement said. The allocation of remaining 50 billion rupees would be decided in the March quarter.