New Delhi: The finance ministry has sought the opinion of the law ministry on a proposal to set up a holding company for all 24 public sector banks. Such a move will need amendments to a number of existing acts, including the bank nationalization acts of 1969 and 1980 and the State Bank of India Act 1955. Following the law ministry’s opinion, the proposal will be forwarded to the cabinet.
The setting up of a holding company, with an aim to recapitalise public sector banks, was announced in last year’s budget by then finance minister Pranab Mukherjee. The aim was to devise a mechanism to handle the growing capital requirements of public sector banks without straining the finances of the government. But it took some time for the model to be finalised as questions were raised about its financial viability as well as the possibility of increased risk since public sector banks account for nearly 75% of the market.
“First, the principal concept has to be approved. Setting up one holding company for all the public sector banks will require amendments to a number of acts which govern banks. We have sought the law ministry’s opinion. It should go to the cabinet in three-four weeks,” said a senior finance ministry official who didn’t want to be identified.
If the cabinet approves, the holding company could be operational from June and manage the capital requirements of banks from the next fiscal, the official said. The holding company has the approval of Reserve Bank of India, he added.
The finance ministry has estimated the state-owned banks’ capital requirement for the next fiscal at Rs20,000 crore. But the final amount decided will be dependent on Planning Commission approval. Of this, around Rs5,000 crore could be allocated to the holding company.
The government has infused more than Rs12,000 crore into state-owned banks this fiscal.
To make the model viable, the holding company may borrow from overseas markets at comparatively cheaper rates so that repayment problems do not arise. The revenue model for the company would involve dividends paid by banks.