Cabinet to soon consider holding co proposal for PSU banks

Cabinet to soon consider holding co proposal for PSU banks New Delhi: The government is likely to consider in the next few weeks a proposal for setting up a holding company for public sector banks to enable them raise capital from the market instead of seeking funds from the exchequer.

The proposal for Bank Holding Company will come up before the Cabinet in next couple of weeks, official sources said.

As per the structure proposed, 99 percent of the government holding in the bank will be shifted to the Holding Company and the government will retain 1 percent with itself so that it remains a state-owned bank, sources said.

The company can be managed by 3-4 part-time officials, sources added.

The 2012-13 Union Budget had proposed setting up of a financial holding company that would help raise resources to meet capital needs of state-owned banks.

The government in the Budget reiterated its commitment to maintain 58 percent stake in state-run banks and announced Rs 15,888 crore capitalisation support to banks and financial institutions.

RBI Governor D Subbarao had earlier said that Indian banks will require an additional capital of Rs 5 lakh crore to meet the new global banking norms, Basel III. The norms are to be implemented in a phased manner by banks by March 2018.

The government, which owns 70 percent of the banking system, alone will have to pump in Rs 90,000 crore equity to retain its shareholding in the Public Sector Banks (PSBs) at the current level to meet the norms.

Subbarao had said "fiscal constraints pose significant challenges" to the government to re-capitalise banks to help them meet the Basel III norms, but bringing down its holdings to below 51 percent can help tide over the problem.

The government may have to resort to direct infusion in public-sector banks for at least for one year or so, an RBI official had also said.

PTI