Holding co for PSBs unlikely to be set up soon

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SummaryA holding company for all public sector banks, proposed in the Budget, may not happen soon as the process involves amendment in 3-4 banking laws, including the Banking Companies Act and SBI Act.

A holding company for all public sector banks, proposed in the Budget, may not happen soon as the process involves amendment in 3-4 banking laws, including the Banking Companies Act and SBI Act.

The finance ministry will move a proposal within a few weeks to the Cabinet for amending 3-4 banking laws needed for setting up a holding company for public sector banks, financial services secretary DK Mittal said Wednesday. “Then it has to be passed by Parliament,” he said.

Amendments are needed in at least three legislation — the Banking Companies (Acquisition and Transfer of Undertakings) Act, SBI Act and SBI Subsidiaries Act, said Mittal. The move to form a holding company for PSBs comes in the wake of Reserve Bank of India’s guideline for all banks. Even the guidelines for new bank licences mandates a financial holding company.

While RBI has expressed reservations in allowing corporates, real estate and broking firms to promote banks, the finance ministry has outline the need for a less rigid rules, but with adequate “firewalls”. The firewall could be in the form of disallowing a new bank to lend to its promoter group company or any of its subsidiaries, Mittal said referring to the finance ministry’s views that is to be conveyed to RBI.

The Banking Laws Bill, which was passed by Parliament after a high-decibel political drama, is to be notified shortly and RBI can proceed with the process of new bank licences soon after.

Mittal said the ministry will ask RBI to look into the relaxation of Basel-III norms on liquidity ratios. Last week, the Bank for International Settlement said the oversight body of Basel Committee on Banking Supervision relaxed rules by expanding definition of liquid assets by including corporate debt, equities and “AA” rated mortgage-backed securities with in the liquidity coverage ratio with up to 50% cut in their value.

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