New Delhi: Industry body Assocham has suggested that a Bank Investment Company (BIC), which will act as a holding company of public sector banks, can be formed to meet state-run lenders’ capital need of Rs 2.40 lakh crore to comply with Basel-III regulations.
“Assocham has recommended BIC as a core investment holding company under Ministry of Finance for holding equity shares in PSBs, which can be permitted to raise resources from the capital markets for future capitalisation,” the industry chamber said in a statement today.
RBI had earlier estimated a capital requirement of Rs 2.40 lakh crore for state-run banks which was done on a 15 per cent growth in risk weighted assets during the period till 2018-19, by when the migration to Basel-III has to be completed.
In a letter to Finance Minister Arun Jaitley, Assocham said that BIC will be akin to a sovereign fund and will be able to tap global financial markets, which is a crying need since against such large requirements.
“This model has been successfully implemented in Singapore and UK, and will enable empowerment of PSU banks by transferring accountability & responsibility from the government to the BIC and offer a level-playing field to PSBs in matters of employee skill development,” Assocham said.
For 2014-15, the government had proposed capital infusion of Rs 11,200 crore. However, against that the government disbursed Rs 6,990 crore to nine public sectors banks including SBI, BOB, PNB, Canara Bank and Indian Bank based on their performance.
“… bring down the government ownership in PSU banks. This key step needs to be fully complemented by targeting to reduce government ownership to 26 per cent (as for new private sector banks) where the government will continue to be the main promoter,” Assocham President Rana Kapoor said.
“In the first stage, the government can garner Rs 90,000 crore just by reducing its stake in 24 PSBs to 52 per cent before going in for ambitious target of bringing down its equity to 26 per cent,” he added.
According to Kapoor, many leading PSBs have in the past invested in prime real estate as also made financial investment in rating agencies, exchanges, allied business like home finance, insurance etc.
PSBs could utilise the current uptick in the capital markets to divest these and raise incremental capital. The government may also look at introducing employee stock ownership plan (ESOP) schemes at PSBs to align value creation interest of shareholders and employees. This will also pave way to hire laterally for key specialised positions to ensure influx of best practices.