COMPANY LAW
| Govt doesn't favour holding company set up for PSU banks Thu, 26 May 2011 22:33:09 GMT |
| NEW DELHI: The finance ministry is not in favour of pushing staterun banks into adopting the holding company structure proposed by the banking regulator. The Reserve Bank of India (RBI) on Monday put out a report recommending a financial holding company model for the financial sector, which it says will protect banks from being destabilised by the activities of other firms controlled by the same promoter. "We are not going to push them (public-sector banks). They can adopt the structure as and when they decide," the official said. In it report titled 'Introduction of Financial Holding Company Structure', put out for comments by stakeholders, the RBI has suggested two routes for migrating state-run banks to the holding company structure. The first is to transfer government holding in the bank and other subsidiaries of the bank to a holding company. In the other, the government continues to hold stake in the bank, but other stakeholders gets transferred to the holding company. In this case the government will be able to unlock its holding values in the subsidiaries. However, the ministry anticipates problems with both options. In the first, the government will not only have to meet the capital needs of the bank, but also that of non-bank subsidiaries. Besides, if the holding company is listed and the bank is not, the government will be stuck with shares in an unlisted entity. "What purpose will it serve to hold majority stake in a bank that is controlled by an FHC (financial holding company) for all purposes," the official said. In the other method, there will be valuation problems when holdings in diverse companies are transferred to a holding company. The government has said it will maintain at least 51% stake in banks. A member of the working group that compiled the RBI report said, "The working group had representations from the government, IBA and private players. If some issues are still pending, they can be incorporated in the final guidelines." The chairman of a leading staterun bank told ET that the finance ministry is yet to ask banks for their views. "It's too early and we would like to wait for further clarity," he said. Sector experts say it will be difficult to convert public-sector banks into a financial holding structure quickly, unless some of legacy issues linked to the Banking Regulation Act are resolved. "Most state-run banks have recently set up subsidiaries in insurance, asset management and other sectors through the joint venture route, and the long-term interests of their JV partners would need to be addressed adequately for a smooth transition," said Robin Roy, associate director, financial services, PwC India. The RBI report says the structure may create challenges in governance. In the second case, for instance, the bank will have two large shareholders - the government and the holding company - each with differing interests. The regulator had set up a working group in June last year to examine the feasibility of introducing a financial holding company structure in India. The working group, headed by RBI deputy governor Shyamala Gopinath, has members from the RBI, the finance ministry, the markets regulator (Sebi), the insurance regulator (IRDA), and the Indian Banks Association. |
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