Staring at a tight fiscal deficit position, the Ministry of Finance on Tuesday asked public sector banks to raise resources on their own, as it might not allocate additional funds for recapitalisation in the coming Budget than what had been allocated in the interim one.
“In the interim Budget, a provision of Rs 11,200 crore (Rs 112 billion)was made. There is a remote possibility of giving more than that in the coming Budget,” an official said requesting anonymity, after Financial Services Secretary G S Sandhu met seven large state-run lenders.
The ministry asked the state-run lenders to meet their capital requirements by offloading government equity, hiving off non-core business, and issuing bonds.
“Various measures to raise capital to bring down pressure on the exchequer were discussed,” Sandhu said after the meeting.
Banks can also list their subsidiaries and raise money, an official said.
Besides discussion on monetisation or listing of non-core businesses such as insurance, mutual funds and credit cards to raise capital, the finance ministry asked the lenders to cut costs.
“We also discussed about hiving off non-core business. Different banks are in different leagues. State Bank of India (SBI) can go for listing its insurance business as it is profitable.
(But) many other banks cannot list their insurance ventures as they are yet to break even,” Bank of India Chairperson V R Iyer told reporters after the meeting.
Officials said the government was willing to dilute its stake in public sector banks as long as it did not go below 58 per cent.
However, in some cases such as Punjab National Bank and SBI, where it is already nearing 58 per cent, the stake might be further diluted but would remain above 51 per cent.
Banks might also be allowed to raise funds through long-term instruments to finance infrastructure.
The ministry might incentivise such instruments and is in discussion with the Reserve Bank of India. Banks were also asked to check their non-performing assets.
One of the solutions being considered is to encourage some listed and non-listed companies that had borrowed heavily and are under stress now to raise funds in the stock market and reduce their debt before it turns bad.
These companies can also raise funds through private placement.
The ministry reiterated banks should act tough on wilful defaulters. Options, including change of management of defaulting companies, financing of acquisition of bad assets by strong companies, were discussed.
The ministry is toying with the idea of a separate statute for high-value wilful defaulters with special courts and time-bound disposal.
