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The Government may soon consider a proposal for capital infusion of Rs 12,000 crore in various state-owned banks, a top Finance Ministry official has said. The formal approval of the Cabinet has been sought and this may be taken up next week, D. K. Mittal, Secretary, Department of Financial Services (DFS), said.
Also, the DFS is seeking nod for not coming back to the Cabinet up to 2018 for all the capital infusions to be made into public sector banks (PSBs) for Basel III rules purposes.
The thinking is Cabinet approval should not be necessary if bank capital infusion funds are being provided through the Union Budget.
Formal approval
“The idea is not to go to the Cabinet again and again (for approval of capital infusion for Basel III),” Mittal said
A formal approval of the Cabinet is being sought as each of the capital infusion in various PSBs will exceed the specified investment level of Rs 300 crore, he said. The current rules require a Cabinet approval for any investment exceeding Rs 300 crore in a public sector company.
The Centre had in Budget 2012-13 provided Rs 15,888 crore towards capitalisation of public sector and regional rural banks and Nabard. Of this amount, the DFS is looking to get approval for Rs 12,000 crore. The DFS has already firmed up the list of 12 banks that would get capital support. The funds are likely to be disbursed in January itself soon after Cabinet approval.
Besides State Bank of India, the banks that may get the capital support include Bank of Maharashtra, United Bank of India, and Indian Overseas Bank.
Mittal also said it is for each bank to decide on the instrument it would use to raise capital from the Government. It could be pure equity or a rights issue. “Rights issue is also acceptable to us”.
In the next five years (up to 2018), PSBs require equity infusion of about Rs 1.5-lakh crore. PSBs will also require non-equity capital of Rs 2.65-lakh crore. For the Government to maintain equity holding of about 59 per cent, it would have to pump in capital of about Rs 90,000 crore in the next five years.
LIC Investment ceiling
LIC’s investment limit in a company will remain at the 30 per cent level spelt out in a 1959 notification, said Mittal.
“The Law Ministry had conveyed to us that the IRDA Act, 1999 does not supersede the LIC Act insofar as the investment guidelines are concerned and therefore the 1959 notification remains,” Mittal said.
It is for LIC to decide the actual level of investment within the 30 per cent limit, he said. IRDA has not been in favour of pegging LIC’s investment limit in a company at 30 per cent.
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