Recapitalisation of PSBs high on agenda: Arun Jaitley

Written by fe Bureau | New Delhi | Updated: Jul 20 2014, 06:39am hrs
Arun JaitleyFinance minister Arun Jaitley arrives for inauguration of a Canara Bank branch in New Delhi on Saturday. PTI
In sync with finance minister Arun Jaitleys Budget promise to bolster the capital base of public sector banks by means other than budgetary support, the department of financial services (DFS) will also lay down a roadmap to bring down government shareholding in all public sector banks (PSBs) to 51% in five years.

A draft Cabinet note on bank capitalisation is under preparation in the ministry, which, among other things, contains the roadmap and it could come under the Cabinets consideration immediately after Parliaments Budget session is over, sources said.

Jaitley said on Saturday that enabling PSBs to raise R2.4 lakh crore over the next four years to meet Basel III norms is high on the governments agenda.

Besides, sources said, the DFS is prioritising efforts to get the Insurance Laws (Amendment) Bill passed by Parliament. The Bill, among other things, seeks to hike foreign investment in domestic insurance companies to 49% from 26% now, a proposal iterated by the minister in the recent Union Budget.

The insurance sector is investment-starved. Several segments of insurance sector need expansion, the minister had said, adding that the composite cap (including FDI and FII) of the insurance sector is proposed to be increased to 49% with full Indian management and control through the FIPB route.

The government proposes to hike the foreign investment ceiling without any riders such as capping the foreign investors holding at 26%. Financial services secretary GS Sandhu told reporters on the sidelines of a Canara Bank event here on Saturday that the government was yet to decide on the timing of SBI stake dilution.

We are preparing the roadmap at the moment (for raising the capital by all PSBs), he said.

Last week, Sandhu had indicated that SBI and Punjab National Bank (PNB) were likely to be among the first batch of PSBs to raise funds this fiscal by tapping the capital market and offering shares to retail investors.

While preserving the public ownership by retaining government holding at minimum 51% in the PSBs, the capital bases of these banks will be raised by increasing the public shareholding in a phased manner via sale of shares through retail to Indian citizens.

In PSBs, the government's equity holding is between 56.26% to 88.63%. In SBI, it has 58.6% stake, while in PNB, it has 58.87%. In the interim Budget in February, the government had proposed to infuse R11,200 crore in PSBs.

Earlier, speaking at the Canara Bank event, Jaitley noted that only 58% of the population has access to the banking system presently. He added that the proposal to offload bank shares to retail investors will bring more money into the banks, which then can be used to expedite the process of financial inclusion and bring in the remaining 42% of the population into the banking system.

The financial inclusion programme is extremely important and is a very high priority item for the government, he said, adding that the banking system should also be used to help micro and small enterprises. Pointing out that huge amounts of money are lying outside the banking system, he said when such money is brought into the system, it can also be used for expanding economic activities and create world-class infrastructure in the country.