Govt proposes a single holding company for PSU banks
Srujani Panda / 14 Oct 2011
The government is planning to form a single holding company to unite all 21 state-run banks, which will change the way it controls the PSU banks.
As per the proposed plan, the government’s entire stake will be transferred to a holding company. Funds will be raised for the banks by the holding company, which in turn, will get a dividend, if one is declared by a bank. A holding company structure allows the banks to raise more capital without diluting the government’s stake. In fact, 85% of the US banks too have such a structure.
Capital Adequacy Ratio, which is a measure of a bank’s capital, expressed as a percentage of the bank’s risk-weighted credit exposure, is also expected to increase, as the RBI expects a credit growth of 19% for 2011-12. The government has proposed to provide a sum of Rs 6000 crore to enable public sector banks to maintain a minimum Tier I Capital to Risk Weighted Asset Ratio. It also plans to hold a minimum 58% stake in public sector banks. However, the fact remains that the government is finding it difficult to capitalise state-run banks due to the constrained fiscal situation.
Basel III is the new regulatory framework, which the RBI is going to implement from 2013. This framework was designed to correct the deficiencies in regulations that led to the global financial crisis. Public sector banks will require an additional Rs 8 lakh crore to meet the new capital norms as well as for their growth requirements over the next 8 years.
This is an interesting move from the government, and would be a positive one for PSU banks, which are finding it difficult to raise funds at present.
Will the holding company be able to meet the banks’ funding requirement in a timely manner, or will the ad hoc infusion of capital continue? These still remain questions of concern. In this respect, we also feel that a lot of clarity will be required on the regulatory front that will monitor the holding company.
As per the proposed plan, the government’s entire stake will be transferred to a holding company. Funds will be raised for the banks by the holding company, which in turn, will get a dividend, if one is declared by a bank. A holding company structure allows the banks to raise more capital without diluting the government’s stake. In fact, 85% of the US banks too have such a structure.
Capital Adequacy Ratio, which is a measure of a bank’s capital, expressed as a percentage of the bank’s risk-weighted credit exposure, is also expected to increase, as the RBI expects a credit growth of 19% for 2011-12. The government has proposed to provide a sum of Rs 6000 crore to enable public sector banks to maintain a minimum Tier I Capital to Risk Weighted Asset Ratio. It also plans to hold a minimum 58% stake in public sector banks. However, the fact remains that the government is finding it difficult to capitalise state-run banks due to the constrained fiscal situation.
Basel III is the new regulatory framework, which the RBI is going to implement from 2013. This framework was designed to correct the deficiencies in regulations that led to the global financial crisis. Public sector banks will require an additional Rs 8 lakh crore to meet the new capital norms as well as for their growth requirements over the next 8 years.
This is an interesting move from the government, and would be a positive one for PSU banks, which are finding it difficult to raise funds at present.
Will the holding company be able to meet the banks’ funding requirement in a timely manner, or will the ad hoc infusion of capital continue? These still remain questions of concern. In this respect, we also feel that a lot of clarity will be required on the regulatory front that will monitor the holding company.
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