There was no word on the Bank Investment Company (BIC) in the Union Budget. The move was widely expected given the pressure on capital of state-run banks and the limited pool of revenues of the government to continue capitalising them. The setting up of a BIC will help raise funds for state-run banks without altering their “public sector character”. That’s because the as long as the government holds more than 50 per cent in the BIC, it retains control over these banks as the majority shareholder.
The BIC is to be set up under the Companies Act, and it is surmised that that the next steps on the BIC -- if any -- may be timed along with the changes to the Banking Regulation Act (1949). And once the state-run banks for privatisation are identified.
The lack of fiscal headroom, and the fact that valuations of these banks are low, has resulted in the Centre’s stake in some of the state-run banks going above 90 per cent if the Life Insurance Corporation of India’s stake is also taken into account.
Between 2015-16 and 2019-20, the Centre had pumped in Rs 3.56 trillion into these banks through both direct subscription of equity shares and recapitalisation-bonds. The two options before the Centre are: to abstain from participation in the capital raising plans these banks may have, or set up the BIC as suggested by the P J Nayak Committee in 2015.