We had asked banks to suggest ways for recapitalisation. Several ways are being suggested, including offloading government equity to between 51% and 58%, bond issues, etc, spinning off of non-core businesses like credit cards, mutual funds, insurance, and the stake that the PSBs may hold in stock exchanges or insurance companies, Sandhu told reporters after a meeting with heads of State Bank of India, Punjab National Bank, Canara Bank, Bank of India, Bank of Baroda and Union Bank.
While a clearer picture on the timeline for such measures will be decided at a later date, these can certainly help bring down fiscal deficit, as the burden on the government to recapitalise the banks will reduce, Sandhu said. He added that the allocation for Rs 11,200 crore in the FY15 interim Budget was unlikely to increase in the Budget.
In the PSBs where the government holds more than 58% stake, its equity will be offloaded till it reaches 58%. Only in the case of State Bank of India and Punjab National Bank, where the government's stake is already close to 58%, will the stake be brought down till 51% after Cabinet approval, he added.
Sandhu also reiterated that a case for holding companies for banks was being examined and that a Bill will have to be introduced in Parliament
While the secretary did not comment on other issues, officials in the finance ministry said a number of other concerns were also discussed. One of the discussions centered around standard accounts that were under the danger of becoming non-performing assets (NPAs).
Sources said that the prospect of de-leveraging the debt burden of some of the big borrowers was discussed. While the mechanism is yet to be finalised, the banks have been told to identify such big borrowers which are still standard accounts but can turn bad. Such borrowers will be told to access the stock market to raise funds and, hence, reduce the debt burden. If the debt burden increases, some of these big borrowers can turn NPAs, an official familiar with the discussions said, although the person declined to divulge if such companies had been identified yet.
The official added that only those companies which have the ability to raise money through the equity markets will be identified and that finance ministry officials will again talk to the banks regarding the matter, in 15 days.
Sources also said there have been discussions between government officials and PSB representatives regarding creation of a separate law for high-value wilful defaulters. This idea is in early stages of discussion and while the modalities are yet to be worked out, officials are looking at the concept of separate courts for such defaulters with an aim of time-bound disposal of the cases.
The officials privy to the discussions also said that setting up of an in-house mechanism for infrastructure financing was also being considered. This mechanism would monitor the projects which had been cleared by the cabinet committee on investment and the project management group but were still stuck because of paucity of credit flow.
Additionally, banks issuing long-term infrastructure bonds to fund projects may be freed from priority-sector lending or investment compulsions for the amount that they raise through such instruments.
This was a part of the presentation made by the financial services secretary to finance minister Arun Jaitley, officials said. They added that the government was also considering the idea of a national asset management company for revival of NPAs.