Financial holding co to infuse equity into PSBs likely

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SummaryThe finance ministry will soon send a note to the Cabinet for setting up a financial holding company, which will leverage its capital base to infuse funds into public sector banks, a senior ministry official said.

The finance ministry will soon send a note to the Cabinet for setting up a financial holding company (FHC), which will leverage its capital base to infuse funds into public sector banks, a senior ministry official said. The proposal, based on the recommendations of the Shyamala Gopinath committee, has the backing of the Reserve Bank of India (RBI). The ministry will also send its views on bank licence norms to RBI next week.

Officials said corporates with exposure to real estate would not be allowed to apply for bank licences. In the first round, the government may prefer existing non-banking finance companies (NBFCs) including micro-finance NBFCs such as SKS Microfinance as candidates, the official said.

The government will also push stake sales in six companies — Oil India, NTPC, Nalco, SAIL, MMTC and RCF — by March-end. The ministry is hoping to raise about R27,000 crore through disinvestments in this fiscal, another official said. The target for disinvestments, as set out in the budget was R30,000 crore. A stake sale in IFCI will be pursued only in 2013-14.

Meanwhile, a proposal to launch a PSU ETF (exchange traded fund) will also be placed before the cabinet shortly. Moreover, a proposal to ease the offer for sale (OFS) norms to facilitate easier trades through this mechansim will also be placed before the cabinet. The ministry is also moving a cabinet note to use the disinvestment proceeds for capitalisation of state-owned banks and financial institutions.

The FHC is being set up mainly to leverage its balance sheet in such a way that banks’ capital requirements are met with minimal contribution from the exchequer. The government recently approved infusion of R12,517 crore in the banks this fiscal.

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