FinMin looking at two models for vesting Govt stake in public sector banks

The Finance Ministry is examining two bank investment holding company models for parking the Government’s shareholding in public sector banks, said GS Sandhu, Financial Services Secretary.

“One view is that for all the banks we should have a single holding company. The second view is that we should have a holding company first at the bank level, particularly for banks, such as State Bank of India and Punjab National Bank, which have a large number of subsidiaries,” he said.

So, each of these banks (large banks) will have one holding company and above all these holding companies there would be an apex holding company, Sandhu explained on the sidelines of Indian Banks’ Association’s 67th annual general meeting.

A view needs to be taken about capital requirements — whether capital has to be provided at each level, he added.

“These are some of the issues which are being addressed. So, only after that we will decide on the holding company structure for public sector banks,” he said.

Sandhu observed that there has not been much progress so far on the bank investment holding company model for vesting the Government’s shareholding in public sector banks (PSBs).

“We are at the moment working on raising more capital directly for the banks. Holding company structure is being discussed with the RBI.

“There are some issues which we have to get over. Once those issues are clear, only then we will decide whether we want to have a holding company and how many holding companies. There are two views,” he said.

To provide a level playing field for public sector banks vis-à-vis their private sector counterparts, the RBI’s PJ Nayak Committee on ‘Review of governance of boards of banks in India’ had proposed the transfer of Government holding in PSBs to a Bank Investment Company (BIC).

Wilful defaulters Wherever borrowers are not repaying loans deliberately, change of management can be done by legal force. That is the provision that the Government is going to incorporate in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, said Sandhu.

Protection for bankers On whether the CBI investigations on banks are denting the morale of bankers, he said, “We are advising the banks that any bona fide action which they take will be protected. They should look at the quality aspect (of loan proposals) and the security aspect.

“We are going to reiterate this soon. Safety and security of their money is important. So, they have to do due diligence and see to it that the money (they lend) comes back to them.”

Pointing out that risk is inherent in banking, Sandhu said a bona fide decision can go wrong. So, for that the banker cannot be penalised. He has to be protected, else no one will take decisions, he pointed out.

PSB chief appointments On top-level appointments in PSBs, the Secretary said the Finance Ministry is looking at bringing more transparency into the appointments.

“What we are proposing is the PSB chief should be appointed for a total of five years. Initially, for three years and based on assessment for a further period of two years,” he said.

In such a scenario, it would not be necessary for a PSB chief to retire at 60.

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