The finance ministry is considering the option of allowing public sector banks to issue non-voting shares in their forthcoming public issues. The option would retain government control over the boards of the banks even after its stake dips below 51%.
A prominent state-owned bank chief confirmed this development. ?This is one of the ideas suggested by merchant bankers advising the ministry on the capital raising plans of the banks,?? he said.
The post-Basel-II growth plans of most of the banks?including those of the country?s largest, State Bank of India–will be hit hard if they are unable to raise capital in the next few years. The finance ministry has already held several rounds of talks with merchant bankers to explore the possibility raising resources for these banks without the government relinquishing its majority voting rights.
Though not many banks face an immediate problem on this front, the ministry is taking a pro-active role on the issue as Left parties have vehemently opposed any move that dilutes the government?s stake below 51%.
Earlier, C Rangarajan, chairman of the Economic Advisory Council to the Prime Minister, had suggested that quasi-government entities like Life Insurance Corporation (LIC) could be roped in to fund the additional capital needs of public sector banks as they move to meet Basel-II norms, without reducing the government?s stake below 51%.
Rangarajan had advocated an alternative whereby the definition of government be widened to include quasi-government entities like LIC. But even this would require an amendment to existing banking laws.