PSBs likely to get capital boost with holding co plan

Written by fe Bureau | New Delhi | Updated: Jun 3 2014, 10:36am hrs
The government is considering a new Bill which would enable holding company structures for public sector banks (PSBs), in what is the clearest indication that recapitalization of banks remains a top priority for finance minister Arun Jaitley.

The proposed Bill would enable the equity of all PSBs to be transferred to their respective holding companies and would allow the latter to raise funds for the bank, a finance ministry official said on Monday.

Last week, financial services secretary GS Sandhu had said the government was seeking various alternative for recapitalization of banks over the next five years in order to meet Basel III norms. Apart from the government injecting capital, other options being considered were raising funds through the capital markets, and setting up holding companies.

The finance ministry is also contemplating raising FDI cap in the insurance sector from 26% to 49% with some riders like restriction on voting rights, the official said.

We might increase FDI cap in insurance without commensurate increase in voting rights. We talked with stakeholders and also held high level meetings in the ministry, the person said, adding that the government may raise FDI cap in the sector, beginning gradually with non-life and health, followed by the life insurance sector.

A proposal to hike FDI cap in the sector was mooted by the Manmohan Singh-government and has been pending in Parliament since 2008. While in opposition, the ruling BJP had opposed raising FDI cap in the insurance sector.

The standing committee on finance, then led by former finance minister Yashwant Sinha, had rejected the proposal, saying it may not have the desired effect and could expose the economy to global vulnerability.

Insurance stocks surge 10.5% on FDI buzz

Shares of companies related to insurance business surged up to 10.5% on Monday following reports that the finance ministry is contemplating raising FDI cap in the sector from 26% to 49% with some riders. Reliance Capital shares rallied 10.41%, while Max India rose by 10.05% on the BSE. Shares of Bajaj Finserv gained 3.15%, while Religare Enterprises was up 1.97%.