Holding Company Proposal For PSU Banks

Cabinet to soon consider holding company proposal for PSU banks

Press Trust of India | Updated On: January 16, 2013 19:19 (IST)

New Delhi: The government is likely to consider within a few weeks a proposal for setting up a holding company for public sector banks to enable them to raise capital from the market instead of seeking funds from the exchequer.

"We are moving to Cabinet for setting up a holding company for the public sector banks," said an official source.

"It will take 2-3 weeks. There will be one holding company for all public sector banks," sources said.

They said the Law Ministry's opinion has been sought for making legislative changes as various acts will have to be synchronised and amendments will be required in the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and 1980.

Besides, State Bank of India Act 1955 and SBI Subsidiaries Act 1959 will have to be synchronised with the holding company structure.

"Law Ministry has to vet the proposal first. Then it will go to cabinet." the source said.

As per the structure proposed, 99 per cent of government holding in the bank will be shifted to the Holding Company and the government will retain 1 per cent with itself so that it remains a state-owned bank, sources said. The company can be managed by 3-4 part-time officials, they added.

The Budget 2012-13 had proposed the setting up of a financial holding company that would help raise resources to meet capital needs of state-owned banks. The Budget 2012-13 had proposed f creating a financial holding company to raise resources to meet the capital requirements of Public Sector Banks is under examination.

Law ministry opinion sought on banks’ holding company

If the cabinet approves, the holding company can be operational from June

Remya Nair

First Published: Wed, Jan 16 2013. 04 04 PM IST

The holding company has the approval of Reserve Bank of India. Photo: Hemant Mishra/Mint

Updated: Wed, Jan 16 2013. 09 46 PM IST livemint

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.

Holding firm for public sector banks in offing

By KR Sudhaman Jan 13 2013 , New Delhi

Bank recapitalisation will no longer be budget business

The government proposes to set up a financial holding company (FHC) to take care of periodic capital infusion in public sector banks, a top finance ministry official said.

Should the proposal go through, the government will transfer most of its equity in public sector banks to the holding company, which will, in turn, leverage its huge capital base to borrow overseas to meet the capital infusion requirement of public sector banks. PSU banks will require almost Rs 1.4 lakh crore of capital infusion in the next four-five years to meet Basel III norms.

The latest proposal follows recommendations in this regard by RBI-appointed Shyamala Gopinath working group.

Finance ministry is giving finishing touches to the proposal, which would go before the cabinet shortly. The main purpose of setting up a holding company is to ensure that the government does not have to make budget provisions any longer for recapitalisation of banks.

The holding company will also receive dividends, the official said, adding it can tap both debt and equity markets to raise capital. However, resources will have to be primarily raised through foreign borrowings, which would then be infused as equity in various state-owned banks.

The government has been infusing capital on a regular basis in PSU banks and this practice would have to be continued for few more years to meet the capital adequacy requirement as banks grow their business. The government has injected about Rs 32,000 crore in the past two years — Rs 20,157 crore in 2010-11 and Rs 12,000 crore in 2009-10. This financial year, it is injecting another Rs 12,517 crore.

Apart from Rs 3,000 crore capital infusion in State Bank of India this financial year, it will also recpitalise Indian Overseas Bank, Central Bank of India, Punjab National Bank, Punjab and Sind Bank, Uco Bank, Union Bank and Bank of Maharashtra. Allocation for individual banks would be announced in the next few days.

The official quoted earlier in this report, who did not want to be named, insisted that the holding company would not interfere in day-to-day functioning or operations of banks. The company would only raise money for capital infusion and apportion it to various public sector banks as per their requirements, so that the exchequer would no longer have to bother about making provisions in the budget, in managing which the government has been walking the tight rope in view of the difficult fiscal situation.

The Shyamala Gopinath working group had suggested that all new banks and insurance companies would have to mandatorily be operated under the financial holding company framework. There could be two holding companies, one each for banks and non-banking companies.

According to the group’s report submitted last May, all identified financial conglomerates having a bank within the group also need to convert to the FHC model in a time bound manner.

The group recommended a separate regulatory framework for FHCs and a new law for regulating FHCs. While the RBI should be designated as the regulator for FHCs, a separate unit within the apex bank should undertake the regulatory function with staff drawn both in-house and from other regulators. The group also recommended a consolidated supervision mechanism through memorandum of understanding between regulators.

On listing the holding company, the working group has recommended that requisite space needs to be provided to the holding company to raise capital for its subsidiaries.

Centre mulls holding company for PSU banks business standared Manojit Saha / Mumbai Sep 30, 2011, 00:53 IST The finance ministry is contemplating a holding company structure for public sector banks. This will help the banks raise capital and government can hold on to a majority stake. The move comes after public sector banks submitted their capital requirement plans for the next eight-10 years, after taking into account the capital requirement under the new Basel-III framework. The government, which is keen on holding a minimum stake of 58 per cent in public sector banks, may find it difficult to infuse large sums of money, as this would affect the country's fiscal position. Banking industry officials say by forming a holding company, it would be possible to raise funds from the market, and the government holding can be maintained at above 58 per cent.     HOLDING ON Govt stake in some major public sector banks: State Bank of India 59.40 Corporation Bank 58.52 Dena Bank 58.01 Allahabad Bank 58.00 Andhra Bank 58.00 Oriental Bank 58.00 Punjab National Bank 58.00 Vijaya Bank 57.69 Union Bank of India 57.07 Bank of Baroda 57.03 Source: Capitaline Compiled by BS Research Bureau According to the proposal, gthe overnment share in the banks would be transferred to the holding company, which would hold 100 per cent stake in the bank. Since the funds would be raised by the holding company, which is an investor in the bank, the government would continue to hold on to its control of the bank's management, while inducting external capital into the holding companies. The bank would pay dividend to the holding company, and this would be used for servicing the debt for the funds raised. In August, the government had sanctioned capital infusion of around Rs 2,000 crore in some public sector banks, to increase its stake to 58 per cent. It had earmarked Rs 6,000 crore for capital infusion in public sector banks, as announced during the Budget this year. Apart from maintaining 58 per cent stake, the government also wants to ensure public sector banks’ tier-I capital adequacy ratio be at least eight per cent. The regulatory requirement is six per cent, with an overall capital adequacy ratio of nine per cent. The government’s stake in large banks like Union Bank of India, Bank of Baroda and Punjab National Bank stands at around 58 per cent and additional fund-raising would not be possible without diluting government stake. The government's stake in State Bank of India (SBI), also in need of funds, is 59.4 per cent. SBI had applied for a rights issue to the government, but the proposal is yet to be approved. Banks are expected to grow at 20-25 per cent over the next few years if economic growth stays around the trend growth rate of eight per cent. Bankers said retained profit would not be sufficient to support the capital requirements required to maintain decent growth.

Manojit Saha / Mumbai Sep 30, 2011, 00:53 IST

The finance ministry is contemplating a holding company structure for public sector banks. This will help the banks raise capital and government can hold on to a majority stake.
The move comes after public sector banks submitted their capital requirement plans for the next eight-10 years, after taking into account the capital requirement under the new Basel-III framework. The government, which is keen on holding a minimum stake of 58 per cent in public sector banks, may find it difficult to infuse large sums of money, as this would affect the country's fiscal position.

Banking industry officials say by forming a holding company, it would be possible to raise funds from the market, and the government holding can be maintained at above 58 per cent.
   

HOLDING ON Govt stake in some major public sector banks:
State Bank of India	59.40
Corporation Bank	58.52
Dena Bank	58.01
Allahabad Bank	58.00
Andhra Bank	58.00
Oriental Bank	58.00
Punjab National Bank	58.00
Vijaya Bank	57.69
Union Bank of India	57.07
Bank of Baroda	57.03
Source: Capitaline Compiled by BS Research Bureau

According to the proposal, gthe overnment share in the banks would be transferred to the holding company, which would hold 100 per cent stake in the bank. Since the funds would be raised by the holding company, which is an investor in the bank, the government would continue to hold on to its control of the bank's management, while inducting external capital into the holding companies. The bank would pay dividend to the holding company, and this would be used for servicing the debt for the funds raised.
In August, the government had sanctioned capital infusion of around Rs 2,000 crore in some public sector banks, to increase its stake to 58 per cent. It had earmarked Rs 6,000 crore for capital infusion in public sector banks, as announced during the Budget this year.
Apart from maintaining 58 per cent stake, the government also wants to ensure public sector banks’ tier-I capital adequacy ratio be at least eight per cent. The regulatory requirement is six per cent, with an overall capital adequacy ratio of nine per cent.
The government’s stake in large banks like Union Bank of India, Bank of Baroda and Punjab National Bank stands at around 58 per cent and additional fund-raising would not be possible without diluting government stake. The government's stake in State Bank of India (SBI), also in need of funds, is 59.4 per cent. SBI had applied for a rights issue to the government, but the proposal is yet to be approved.

Banks are expected to grow at 20-25 per cent over the next few years if economic growth stays around the trend growth rate of eight per cent. Bankers said retained profit would not be sufficient to support the capital requirements required to maintain decent growth. SUUTI may become holding company for PSBs

Dheeraj Tiwari, ET Bureau Jul 16, 2012, 04.02AM IST

NEW DELHI: The finance ministry is considering using the Specified Undertaking of UTI, or SUUTI, as a holding company for all the state-run banks in a bid to fast track its budget proposal to house all government holding in state-run companies under one structure to help raise capital easily.

The union cabinet has already approved a proposal to wind up SUUTI and shift its assets to a new asset management company.