In newsThe finance ministry is looking at other avenues for affordable capital infusion, including setting up of a Bank Investment Company (BIC), as the RBI has raised concern over the issuance of zero coupon bonds for recapitalisation of public sector banks (PSBs)
Suggested by: P J Nayak Committee in its report on
'Governance of Boards of Banks in India'.
Recommendations
- Transferring shares of the government in the banks to the BIC which would become the parent holding company of all these banks, as a result of this, all the PSBs would become 'limited' banks.
- BIC will be autonomous and it will have the power to appoint the board of directors and make other policy decisions about subsidiaries.
- It would also look at alternative ways of raising capital such as the sale of non-voting shares in a bid to garner affordable capital.
Issue
- Reserve Bank of India (RBI) expressed concerns over zero-coupon bonds for the recapitalisation of PSBs.
- The RBI has raised some issues with regard to calculation of an effective capital infusion made in any bank through this instrument issued at par, the sources said.
- Since such bonds usually are non-interest bearing but issued at a deep discount to the face value, it is difficult to ascertain net present value, they added.
- As these special bonds are non-interest bearing and issued at par to a bank, it would be an investment, which would not earn any return but rather depreciate with each passing year.
Bank Investment Company (BIC)
This company will independently control all banks without government’s intervention. It will also help ensure that government’s stake in these banks is strategically reduced to upto 51%.
Source: The Hindu
