FinMin considers BIC model as RBI flags zero-coupon bonds for bank recapitalisation
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
PTI | January 16, 2021 | Updated 22:30 IST
Finance Minister Nirmala Sitharaman
With the 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 setting up of a Bank Investment Company (BIC), sources 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 .
About the Speaker: Dr. Krishnamurthy Subramanian, currently the Chief Economic Adviser to the Government of India, is a leading expert on economic policy, banking and corporate governance. In his role as Chief Economic Adviser, he has authored India’s 2019 Economic Survey and 2020 Economic Survey, the flagship annual document of the Ministry of Finance. His academic articles span various topics, including corporate governance, bankruptcy, and banking deregulation, and have appeared in a range of peer-reviewed journals including Journal of Financial Economics, Review of Financial Studies, and Journal of Law and Economics. He has previously served on several expert committees including the P.J. Nayak Committee on governance of banks for the Reserve Bank of India and the Uday Kotak Corporate Governance Committee of Securities and Exchange Board of India. He was also the Founding Board Member at Bandhan Bank (2015-18).
Earlier this week, Governor Shaktikanta Das completed two years at the helm of the Reserve Bank of India (RBI). In a flashback, two years ago, around the time the Governor took charge, financial markets were indeed in choppy waters. The ILF&S and YES bank crises were looming large. They resulted in a major liquidity crisis, as NBFCs found it difficult to raise funds from banks and certain sectors were faced with a severe liquidity squeeze.
Though inflation was under control and subsiding, interest rates were high with the repo rate quoting at 6.5 per cent, as RBI retained its calibrated tightening stance. Most of the investments in the previous two years were government-driven and corporate loan offtake was low, with a host of growth sectors like telecom and power coming under stress.
There is a buzz in the air about privatisation of some of the public sector banks (PSBs). There has been talk of privatising Industrial Development Bank of India (IDBI Bank) in financial year (FY) 2020–21. Of the disinvestment target for the year of Rs 2.1 trillion, Rs 90 billion was to have come from stake sale in Life Insurance Corporation of India (LIC) and the privatisation of IDBI Bank.
The media has also reported proposals to privatise PSBs that were not part of the mega-mergers announced earlier this year, namely Punjab and Sind Bank, Bank of Maharashtra, UCO Bank, Bank of India, Indian Overseas Bank and Central Bank of India.