The government may have to consider the golden share option for public sector banks to help them raise extra capital from the markets. This is among several proposals being debated by advisers to the government as part of a strategy to strengthen the capital structure of these banks.
Golden share means vesting a share or a set of shares with extraordinary rights to block any move made by a board of directors to alter a bank?s structure, like transforming a public sector bank into a private sector one, even if the government holds minority stake in it.
The proposal is a re-run of a plan mooted by the previous NDA government to dilute government equity in banks from 51% to 33%. But an official source said no decision had been taken on the new plan as the government was mulling alternatives like the stock split option and permitting banks to tap the resources of public sector companies, like LIC and UTI MF, to finance their expansion. One of the options could be to reduce government holding to 26%. The government would still have the right to block special resolutions, the official added. Experts said, with the economy growing at 8-9% a year, bank credit growth would also cruise along at 24-25%. This would force banks to raise additional monies to maintain their capital adequacy ratio norms.
Arun Kaul, general manager(treasury and finance), Punjab National Bank, however, said he was not sure if UTI MF and LIC would be ready to make any large exposure to back more capital requirements of public sector banks. ?So, the government could be inclined to think on the lines of bringing in the golden share option?, he added.
Recently, C Rangarajan, chairman of the Economic Advisory Council to the Prime Minister, had raised the issue of additional capital requirement of public sector banks to help them meet Basel II norms.
The banks would now be looking at raising more funds, estimated at over Rs 9,000 crore, to maintain the capital requirement for the operational risk specified in the Basel-II standards.
Saumitra Chaudhuri, member of the council, said, since amending statutory provisions would be difficult, the government would have to find ways to proportionately raise its share when banks go in for public issues.