Money & Banking

SBI chief proposes differential voting rights to meet Basel-III norms

| | Updated on: Dec 11, 2014
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With the government indicating that it won’t continue to fund public sector banks (PSBs), SBI chairperson Arundhati Bhattacharya today said they could look at issuing shares with differential voting rights to raise funds for meeting the Basel-III capital adequacy norms.

“The writing on the wall is very clear...they (PSBs) have to think of differential voting rights. It is time to lay out some kind of roadmap on how much the banks need to do and how much support it would get,” she said, while talking to reporters on the sidelines of a conference.

The government had yesterday allowed PSBs to raise up to Rs 1.6 lakh crore from markets by diluting the government holding to 52 per cent in phases to meet Basel III norms.

Consolidation

Pitching for consolidation in the banking sector, Bhattacharya said that it was important to have three to four major banks.

“It is extremely important for India to have 3-4 major banks. ... We should allow the banks to come together and talk among themselves. In the past also, we have seen government has forced some mergers...it is very important for the banks to determine who should be their correct partners,” she added.

According to Bhattacharya, “it is better to merge good banks with good banks.”

Stake dilution

She further said the government has shown its intent to continue with reforms in the banking sector by deciding to bring down its stake to 52 per cent.

“The news that the government has allowed PSBs to bring down government stake to 52 per cent kicks off the next round of reforms... because for the first time clear signal has been given (to PSBs) to source capital from the market.

“The big daddy back there is not going to be around to give them capital as and when they need. If they need to be competitive and want to grow, then they definitely need to look at other places for more capital,” Bhattacharya added.

Out of 27 PSBs, the Government of India controls 22 through majority holding. In the remaining five, state-run SBI holds majority stake.

Basel III norms

The Basel III norms, which will come into effect from March 31, 2019, were put in place following the 2007-08 financial crisis triggered by the fall of Lehman Brothers.

The norms are aimed at improving risk management and governance, while raising the banking sector’s ability to absorb financial and economic stress.

As per Basel-III norms, the minimum capital level for Tier-1 has to be 7 per cent.

Published on March 12, 2018

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