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Govt can dilute stake to help PSBs meet Basel III norms: RBI

“The government needs to infuse Rs90,000 crore into the state-run banks to maintain majority shareholding under the Basel III, which given its precarious fiscal position will be a difficult task,” said RBI governor D Subbarao

 
Mumbai: Given its poor fiscal position, the government will find it difficult to re-capitalise banks to help them meet the Basel III norms, but bringing down its holdings to below 51% can help tide over the problem, reports PTI quoting RBI governor D Subbarao.
 
Noting that both public and private banks together need an additional capital of Rs5 trillion (Rs5 lakh crore) to comply with the Basel III regulations, he said, “the government needs to infuse Rs90,000 crore into the state-run banks to maintain majority shareholding under the Basel III, which given its precarious fiscal position will be a difficult task.”
 
The banks would need a total equity capital of Rs1.75 trillion, and non-equity capital of Rs3.25 trillion, taking the overall requirement for Basel III to Rs5 trillion, the governor told bankers at a Ficci-IBA organised summit.
 
“The government has two options—either to maintain its shareholding at the current level or bring down its shareholding at 51% in all the banks across the board,” Mr Subbarao said.
 
“If the government wants to maintain its shareholding at the current level (by law it has to hold at least 51% in each of its 26 banks), it will have to provide capital to the order of Rs90,000 crore, (but) if it brings down its shareholding across all public sector banks, the burden reduces to just under Rs70,000 crore,” he said.
 
However, Mr Subbarao added, “But will the government sacrifice its majority shareholding responsibility, rights and obligations or will it amend the statutes such that even if their shareholding comes below 51%, it continues to enjoy the privileges of a majority shareholder.”
 
The amount that the market will have to provide will be Rs70,000 crore to Rs1 trillion depending on how much the government will provide, he said, noting that the market has the capacity to offer this much funds as over the past five years banks have raised equity capital worth Rs52,000 crore.
 
The RBI governor also discouraged the government from issuing recapitalisation bonds to the banks, saying that such a move militates against fiscal transparency and it only postpones the issues to a later period.
 
“Providing equity of this size will be quite a significant challenge given fiscal constraints of the government. The tempting option would, of course, be to issue recapitalisation bonds but as we all know it militates against fiscal transparency,” Mr Subbarao said.
 
The average return on equity for the domestic banking system for the last three years has been around 15%.
 
Noting that the implementation of Basel III norms is expected to result in a decline in the RoE in the short-term, he however said, “The expected benefits arising out of a more stable and stronger banking system will largely offset the negative impact of a lower RoE in the long-term.”
 

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Govt clears SC/ST quota proposal for promotion in state jobs

The Union Cabinet, at a meeting chaired by prime minister Manmohan Singh, approved the proposal for making provisions for quotas for SC/STs in promotions in government jobs

 
New Delhi: The government on Tuesday cleared a proposal that would allow it to provide reservation for Scheduled Castes (SC) and Scheduled Tribes (ST) in promotion in state jobs, reports PTI.
 
The Union Cabinet, at a meeting chaired by prime minister Manmohan Singh, approved the proposal for making provisions for quotas for SC/STs in promotions in government jobs.
 
The Cabinet nod clears the decks for introduction of a Constitution Amendment Bill in the ongoing session of Parliament, which has been a long-standing demand of all parties, barring the Samajwadi Party.
 
An all-party meeting, convened by the prime minister on 21st August, had discussed the issue of reservation in promotion specifically in the wake of the decision of the Supreme Court striking down reservation in promotion to SCs and STs in Uttar Pradesh.
 
Most political parties had favoured a legally sustainable legislation in the backdrop of the Supreme Court order.
 
The proposed bill seeks to amend at least four articles of the Constitution to enable the government to provide quota in promotions to SC/STs.
 
Bahujan Samaj Party (BSP) leader Mayawati had raised the issue in Parliament after the Supreme Court had on 28th April struck down her government’s decision in this regard.
 
Parliament had witnessed disruptions on the issue in the current as well as the previous session.
 

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