FinMin eyes BIC model to infuse capital
With the Reserve Bank of India (RBI) raising concern over the issuance of zero coupon bonds for recapitalisation of public sector banks (PSBs), the finance ministry is examining other avenues for affordable capital infusion, including the setting up of a Bank Investment Company (BIC), persons aware of the matter said.
Setting up a BIC as a holding company or a core investment company was suggested by the P J Nayak Committee in its report on ‘ Governance of Boards of Banks in India’.
The report recommended transferring shares of the government in the banks to the BIC which would become the parent holding company of all these banks, as a result of this, all the PSBs would become ‘limited’ banks. BIC will be autonomous and it will have the power to appoint the board of directors and make other policy decisions about subsidiaries.
The idea of BIC, which will serve as a super holding company, was also discussed at the first Gyan Sangam bankers’ retreat organised in 2014, the persons said, adding it was proposed that the holding company would look into the capital needs of banks and arrange funds for them without government support.
It would also look at alternative ways of raising capital such as the sale of non-voting shares
in a bid to garner affordable capital.
With this in place, the dependence of PSBs on government support would also come down and ease fiscal pressure.
To save interest burden and ease the fiscal pressure, the government decided to issue zerocoupon bonds for meeting the capital needs of the banks.
The first test case of the new mechanism was a capital infusion of ₹5,500 crore into Punjab & Sind Bank by issuing zerocoupon bonds of six different maturities last year. These special securities with tenure of 10- 15 years are non- interest bearing and valued at par.
However, RBI expressed concerns over zero-coupon bonds for the recapitalisation of PSBs. The RBI has raised some issues with regard to calculation of an effective capital infusion made in any bank through this instrument issued at par, the persons said.