State-run banks to present reform plans to Modi Jan 3

Prime Minister Narendra Modi will meet bankers Jan 3 during the concluding session of their "retreat" in Pune where they will prepare an action plan for reforms in public sector banks (PSBs).

"In view of the importance of the retreat being held Jan 2-3 at Pune for banks and financial insititutions with a view to injecting more money into the system, the prime minister will go to participate in the concluding session," Finance Minister Arun Jaitley told reporters here Wednesday.

Jaitley, along with Reserve Bank Governor Raghuram Rajan, senior officials of the finance ministry and heads of PSBs will be attending the retreat called "Gyan Sangam", an official statement here said.

"The final objective would be to prepare a blue print of reform action plan. The outline of the reform action plan would be presented to the prime minister Jan 3 at the retreat. Then, further deliberations will take place on this in the presence of the prime minister," it added.

Earlier this month, the government decided to permit public sector banks to raise up to Rs.160,000 crore from capital markets by diluting government holding to 52 percent in phases so as to meet Basel III capital adequacy norms.

The government controls 22 of the 27 public sector banks through majority holding. In the remaining 5 banks, state-run State Bank of India holds majority stake.

Presenting his maiden annual budget in July, Finance Minister Arun Jaitley had said that the capital of state-run banks will be raised through sale of shares to the public.

The measure is to meet India's obligations under the Basel banking accord signed by 27 nations on capital adequacy norms to ensure that financial institutions have enough capital on account to meet obligations and absorb unexpected losses.

Upwards of Rs.240,000 crore of capital by equity is required to be infused into India's banking sector by 2018.

The Basel III norms, which will come into effect March 31, 2019, were put in place following the 2007-08 financial crisis in the US.

The total government support provided to PSBs towards capitalisation during the past four years was Rs.58,634 crore, while the provision for the current year is at Rs.11,200 crore. The total market cap of government shareholding as on May 2014, stands at over Rs.419,000 crore.