Sinha Panel backs non-voting shares for bank capitalisation

NEW DELHI: A parliamentary committee has favoured allowing state-run banks to issue non-voting shares to help them access capital from the markets without diluting the government’s control over them.

The suggestion of the standing committee on finance comes at a time when a cash-strapped government is exploring options to shore up the capital base of public sector banks.

“This may fast track the process and will bring a major change in the current form of capitalisation support,” a senior government official said, requesting anonymity.

A non-voting share for a bank will be a share where the holder has no voting right.

Banks are finding it tough to raise funds through issue of fresh shares as it will lead to a dilution of the government’s stake to below the mandatory 51%.

The committee, headed by BJP leader and former finance minister Yashwant Sinha, has also recommended in its report that the Reserve Bank of India (RBI) should put in place strict riders before granting 26% voting rights to shareholders in banking institutions.

The panel has only given conditional nod for the voting rights provision and said that voting rights for investors should be capped at 26%, instead of it being in proportion to equity holding.

The committee, however, has said that the government should look at the merits of issuing non-voting shares, as it will allow it to expand the capital base of banks without the risk of management control falling into a few hands.

In 2010-11, the government infused Rs 20,157 crore in state-run banks to help them achieve a tier-I capital adequacy ratio at 8%. For the current fiscal, the Planning Commission has approved an additional capitalisation demand of Rs 14,000 crore.

Earlier this fiscal, the finance ministry allocated Rs 6,000 crore towards bank capitalisation, of which half is expected to go to State Bank of India, the country’s largest lender.

On voting rights, the committee has said that the RBI should take sufficient safeguards while stipulating conditions such as credentials, source of funds, track record and financial inclusion, before granting approval.

The panel has also said that mergers and acquisitions in the sector should not be kept out of the competition regulator’s purview forever.

This should be considered as a special case and an “expedient measure” to be revisited after both the RBI and the Competition Commission of India gain some experience, it has said.

On Depositor Education and Awareness Fund, the committee has said that it should be created without compromising the rights and claims of depositors or their legal heirs. Depositors’ legal heirs should be informed before transfer of money to the protection fund, it added.

The government has said that money from an account that has not been in operation for the last 10 years should be transferred to this fund for promotion of depositors’ interest.