The finance ministry is contemplating a holding company structure for public sector banks. This will help the banks raise capital and government can hold on to a majority stake.
The move comes after public sector banks submitted their capital requirement plans for the next eight-10 years, after taking into account the capital requirement under the new Basel-III framework. The government, which is keen on holding a minimum stake of 58 per cent in public sector banks, may find it difficult to infuse large sums of money, as this would affect the country's fiscal position.
Banking industry officials say by forming a holding company, it would be possible to raise funds from the market, and the government holding can be maintained at above 58 per cent.
| HOLDING ON Govt stake in some major public sector banks: | |
| State Bank of India | 59.40 |
| Corporation Bank | 58.52 |
| Dena Bank | 58.01 |
| Allahabad Bank | 58.00 |
| Andhra Bank | 58.00 |
| Oriental Bank | 58.00 |
| Punjab National Bank | 58.00 |
| Vijaya Bank | 57.69 |
| Union Bank of India | 57.07 |
| Bank of Baroda | 57.03 |
| Source: Capitaline Compiled by BS Research Bureau | |
According to the proposal, the government share in the banks would be transferred to the holding company, which would hold 100 per cent stake in the bank. Since the funds would be raised by the holding company, which is an investor in the bank, the government would continue to hold on to its control of the bank's management, while inducting external capital into the holding companies. The bank would pay dividend to the holding company, and this would be used for servicing the debt for the funds raised.
In August, the government had sanctioned capital infusion of around Rs 2,000 crore in some public sector banks, to increase its stake to 58 per cent. It had earmarked Rs 6,000 crore for capital infusion in public sector banks, as announced during the Budget this year.
Apart from maintaining 58 per cent stake, the government also wants to ensure public sector banks’ tier-I capital adequacy ratio be at least eight per cent. The regulatory requirement is six per cent, with an overall capital adequacy ratio of nine per cent.
The government’s stake in large banks like Union Bank of India, Bank of Baroda and Punjab National Bank stands at around 58 per cent and additional fund-raising would not be possible without diluting government stake. The government's stake in State Bank of India (SBI), also in need of funds, is 59.4 per cent. SBI had applied for a rights issue to the government, but the proposal is yet to be approved.
Banks are expected to grow at 20-25 per cent over the next few years if economic growth stays around the trend growth rate of eight per cent. Bankers said retained profit would not be sufficient to support the capital requirements required to maintain decent growth.
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