Holding company for bank recap by June

A holding company for recapitalising public sector banks is likely to be set up by June. The finance ministry has estimated that it would need to infuse Rs 20,000 crore in state-run banks next year, against Rs 12,517 crore this year. This holding company can raise money from the markets and the government may not need to dig into its budgetary resources to capitalise the banks.

A finance ministry official said initially the government would put some capital into the company from budgetary resources but later it can get dividend income as well as tap the markets.

“The government will transfer 99 per cent holding of banks into it. Initially it will be only for banks but later other financial institutions can also join it,” the official said.

In Budget 2012-13, the government had proposed to create the financial holding company. The finance ministry sent the guidelines for setting up the holding company to the Reserve Bank of India (RBI) sometime ago but the central bank had reservations on some of the points. It wanted that the guidelines for regulating a holding company should be put in place first.

The holding company is likely to be a statutory body to be set up under a new Act of Parliament. It will be able to raise money globally. The concept of a bank holding company is prevalent in many countries such as the US, China and Canada. The private sector also uses holding companies for acquisitions.

This year around 10 public sector banks will get a total capital infusion of Rs 12,517 crore from the government before this financial year ends. Last week, the Cabinet had given in-principle approval for providing need-based recapitalisation of banks till 2018-19 for ensuring compliance with the stiffer Basel-III capital adequacy norms.

Earlier this week, global regulators gave banks four more years and greater flexibility to be compliant with Basel-III norms, as advanced economies have struggled to recover. Banks had complained they could not meet the January 2015 deadline. So, the committee’s oversight body agreed to phase in the rule over four more years.