To meet Basel III norms, govt to dilute stake in PSBs to 52%

Union Cabinet gives nod to banks for raising capital from markets.

By: ENS Economic Bureau | New Delhi | Published:December 11, 2014 1:29 am
The decisions were taken at a meeting of the Union Cabinet on Wednesday that was chaired by Prime Minister Narendra Modi. The decisions were taken at a meeting of the Union Cabinet on Wednesday that was chaired by Prime Minister Narendra Modi.

The government has moved ahead with crucial financial sector reforms including permitting banks to raise as much as Rs 1.60 lakh crore from the markets to enhance their capital base and also approving the long pending Insurance Laws (Amendment) Bill, 2008.

The decisions were taken at a meeting of the Union Cabinet on Wednesday that was chaired by Prime Minister Narendra Modi.

Public sector banks (PSBs) have been permitted to dilute government holding to 52 per cent in phases in order to raise funds to meet Basel III capital adequacy norms.

“The quantum of capital support needed by banks is huge, which cannot be funded by budgetary support alone,” said an official release, adding that public sector lenders have been asked to broadbase retail shareholding while going in for the fund raising.

Out of 27 PSBs, the government controls 22 though majority shareholding while State Bank of India is the majority stakeholder in the remaining five banks.

“If the PSBs are permitted to bring down government holding to 52 per cent in a phased manner, they can raise up to Rs 1,60,825 crore from the market,” the release said.

The Basel III norms, which will come into effect from March 31, 2019, were put in place following the 2007-08 financial crisis triggered by the fall of Lehman Brothers. The norms are aimed at improving risk management and governance while raising the banking sector’s ability to absorb financial and economic stress.

As per Basel-Ill norms, the minimum Tier-1 capital has to be 7 per cent.

The Centre has provided Rs 11,200 crore as capital support to banks in the current fiscal, taking the overall support to PSBs for capitalisation during the past four years to Rs 58,634 crore. Government budgetary support needed for 2015-19 would be Rs 78,895 crore, which will maintain government holding at 52 per cent, the statement said.

However, as the government is likely to receive an amount of Rs 34,500 crore from PSBs as dividend, the net outgo will only be Rs 44,395 crore, it added.

Cabinet approves Insurance Bill

NEW DELHI: Hours after the select committee of Rajya Sabha submitted its report on the Insurance Laws (Amendment) Bill, 2008, the Union Cabinet approved incorporation of its amendments in the proposed legislation.

“The Bill is aimed at removing archaic and redundant provisions in the relevant legislations and to enable the insurance sector to work for the betterment of the insured with greater efficacy,” the release said. Sources said the Bill likely to be introduced in Parliament as early as next week for consideration and passing.

Currently, only 26 per cent foreign direct investment is allowed in private sector insurance companies but the bill has proposed a composite cap of 49 per cent for foreign investment. The hike in foreign investment limit is estimated to attract about Rs 25,000 crore of overseas funds in the sector. ENS

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