Cabinet will keep eye on MCC, but RBI may act, says FM P. Chidambaram

Written by PTI | New Delhi | Updated: Mar 6 2014, 15:34pm hrs
PGuidelines for setting up new pvt banks were issued in Feb 2013 and the last day for applications was July 1. PTI
The Reserve Bank of India (RBI) is likely to issue a few bank licences notwithstanding the model code of conduct (MCC), which came into force from today, Finance Minister P. Chidambaram said.

"What the code of conduct has got to do with this (bank licence process). The government and regulators are discharging their normal duties... They (RBI) wish to issue a few licences," he said after a meeting of PSU bank chief here.

"So that's the indication we have got. We are not interfering with that process, that is the RBI's decision," he added.

The model code of conduct has come into force with the announcement of general election today.

Last month, the Bimal Jalan panel, which scrutinised applications for new bank licences, submitted its report along with shortlisted entities to the Reserve Bank of India.

Guidelines for setting up new private banks were issued in February 2013 and the last day for applications was July 1.

The RBI received 27 applications and subsequently, Tata Sons Ltd and Value Industries Ltd withdrew.

Public sector units, India Post and IFCI and private players such as Anil Ambani group and Aditya Birla group were among 25 players in the fray for bank licences. Bajaj Finance, Muthoot Finance, Religare Enterprises and Shriram Capital have also applied.

Asked about consolidation in the banking sector, Chidambaram said: "I am advocate of consolidation but I have said that the initiative must come from the banks themselves, which means banks have to take their stakeholders into confidence. It has to come from banks."

On capital infusion in PSU banks, the Finance Minister said the government will provide more funds if it mobilises higher resources.

"As you know, government has provided Rs 11,200 crore for next year. This is not adequate, but that's the budget estimate... As we find more money, we should infuse more into the public sector banks," he said.

The Finance Minister said the meeting also deliberated on ways to raise equity capital of public sector banks to support their growth.

"We have discussed ways to raise additional Tier I capital. Hopefully, we can take them forward. I will discuss some ideas when I meet with RBI board day after tomorrow," he said.

Chidambaram will address the RBI board on March 7.

Elaborating on the suggestions, Chidambaram said the minority shareholders can be given a rights issue in an equal proportion so that stake in not diluted.

"While government infuses capital, the minority shareholders can be given a rights issue in an equal proportion so that nobody's share is diluted, but you raise additional capital from minority shareholders to match the capital infused by the government," he said.

Besides, Chidambaram said, PFDRA and IRDA must revisit some of their regulations to enable pension funds and insurance funds to be invested in additional tier one capital, which is a perpetual bond.

"Another suggestion is that banks may be allowed to issue shares to their employees. They are confident that they can mobilise a significant amount of capital by issuing shares to their employees," he added.

"These are the suggestions, we should be examining. and this will be implemented, whatever the suggestions are finally accepted. We shall be implementing it next year in the next round of capital infusing begins," he said.