NEW DELHI:Taking the first step towards a holding company structure for public sector banks (PSBs), the government on Friday announced the setting up of a Banks Board Bureau (BBB).
It will recommend appointment of directors in PSBs and advise on ways of raising funds and dealing with issues of stressed assets.
"As a first step towards a bank holding company that will hold all government investments in public sector banks, we had proposed a Bank Board Bureau and its structure will be announced," Finance Minister Arun Jaitley said at a press conference here.
"In the last few years, the public sector banks have faced challenging situation, partly on account of slowdown in some sectors. "To resolve the current problem, you need to deal with the banks as well as the sectors themselves," he said.
"Political interference in the functioning of banks must cease. Commercial decisions should be taken on commercial considerations," the finance minister added.
Jaitley said the new policy - Comprehensive Transformation Framework - being announced for banks is one "where each bank will be monitored now on key performance
Financial services secretary Hasmukh Adhia said the BBB would replace the existing appointments board for PSBs.
"The BBB will also be a link between the government and banks and will be engaged with banks to evolve strategies for them," he said.
The bureau will be a six-member board comprising three from the private sector and three government nominees, while the chairman "will be a distinguished banker or regulator", Adhia said.
Jaitley in his budget speech in February had announced the setting up of an autonomous Banks Board Bureau for helping lenders raise capital for meeting expansion needs.
Banks have a requirement for Rs.180,000 crore over the next four years to meet their capital requirements, Adhia said.
"Of this, we will provide Rs.70,000 crore. They can raise Rs.1.1 lakh crore from the market," the secretary said.
Last month, the government presented to parliament a supplementary demand for grants to provide for Rs.12,000 crore towards recapitalization of PSBs.
Adhia said the government plans to provide Rs.25,000 crore capital each in the current and next fiscal year, while Rs.20,000 crore would be provided during 2017-18 and 2018-19.
The Rs.25,000 crore this year will be provided in three tranches.
Around 40 percent of the amount will be given to those banks which require support, and all PSBs will be brought to the level of at least 7.5 percent core capital by fiscal 2016.
In the second tranche, 40 percent of capital will be allocated to State Bank of India, Bank of Baroda, Bank of India, Punjab National Bank, Canara Bank and IDBI Bank.
The remaining portion of 20 percent will be allocated to the banks based on their performance during the three quarters in the current year.
Jaitley has allocated Rs.7,940 crore in the budget for recapitalisation of public sector banks in this fiscal.
The union cabinet had in December allowed state-run banks to raise up to Rs.160,000 crore from the capital markets by diluting the government stake in phases to 52 percent.
As per an estimate, public sector banks would need additional capital of up to Rs.240,000 crore by 2018 to meet the Basel III capital adequacy norms, put in place to guard against a repeat of the situation following the 2008 US financial crisis.
The Reserve Bank of India said last month that state-run banks are adequately capitalised, but would need additional funds to comply with international capital adequacy norms in the future.