The Union Cabinet gave its approval on Wednesday to allow Public Sector Banks (PSBs) to dilute government holding up to 52 per cent in a phased manner to raise over Rs. 1.68 lakh crore to meet their additional capital requirements under BASEL-III capital adequacy norms. It also approved the insurance amendment bill that raises the foreign investment cap in the sector to 49 per cent from the current 26 per cent.
“Out of 27 PSBs, Government of India [GoI] controls 22 through majority holding. In the remaining 5 banks, State Bank of India holds majority stake,” official sources said. “These 27 PSBs control 70 per cent of total branches, deposits and credit in the Indian banking system. GoI has regularly been infusing incremental capital in PSBs. Basel-III capital adequacy norms will be fully phased in and applicable by March 31, 2019,” it was added.
Basel III is the international regulatory framework for banks. “The quantum of capital support needed by banks is huge, which cannot be funded by budgetary support alone,” an official release said. “If the PSBs are permitted to bring down GOI holding to 52 per cent in a phased manner, they can raise upto Rs.1,60,825 crore from the market. GoI budgetary support needed for 2015-19 would be Rs.78,895 crore only, which will maintain GoI holding at 52 per cent. However, as Govt. is likely to receive an amount of Rs.34,500 crore from PSBs as dividend, the net outgo will only be Rs.44,395 crore,” it added, explaining the need for the decision.
The Cabinet also approved the scheme for setting up 25 solar parks each with a capacity of 500 MW and above and Ultra Mega Solar Power Projects in various parts of the country where large chunks of land can be spared for this purpose, a separate release said. These parks will be able to accommodate over 20,000 MW of solar power projects that will be set up over the next five years.
